Oil News: Can Oil Demand Rebound as Supply Risks Mount in the Middle East?

Oil Market Recap and Forecast: October 13, 2024

Crude oil prices have experienced notable volatility over the past week, driven by geopolitical tensions, supply concerns, and economic factors. Despite a midweek pullback, oil benchmarks ended the week with a slight gain, largely influenced by rising risks in the Middle East and disruptions in U.S. fuel demand due to Hurricane Milton.

Last week, Light Crude Oil Futures settled at $75.56, up $1.18 or +1.59%. This was up from a weekly low of $75.53.

The pivot at $75.10 is likely to determine the direction of the market this week. A sustained move over this level will indicate the presence of strong buyers with potential targets coming in at $77.76 and $80.71. The near-term support zone is $72.21 to $69.79.

Middle East Tensions Lift Prices

Oil prices surged earlier in the week following fears of a potential conflict between Israel and Iran. On October 1, Iran launched a missile attack on Israel, prompting concerns about a retaliatory strike on Iranian oil facilities, which could severely impact global supply​. The geopolitical risk premium remains, as Israel’s Defense Minister has indicated that any military response will be “lethal and precise,” keeping markets on edge​​. Investors are closely watching developments, as further escalation could push oil prices significantly higher.

Hurricane Milton Adds to U.S. Supply Concerns

Hurricane Milton, which made landfall in Florida, disrupted fuel supplies and caused gasoline shortages across the state. Power outages and infrastructure damage in the Gulf of Mexico, where U.S. oil production is concentrated, have further tightened supply. Although the hurricane has moved offshore, the impact on the petroleum infrastructure may last into next week, continuing to support gasoline and crude prices​​.

Demand Outlook Dampens Optimism

Despite these bullish factors, concerns about global oil demand persist. China, the world’s largest oil importer, has seen slower-than-expected economic growth, raising doubts about the strength of its oil consumption. Although Beijing introduced measures to support private sector growth, they have yet to boost investor confidence significantly​.

In the U.S., despite some positive economic data, rising crude inventories—up nearly 11 million barrels last week—signal weaker demand, further dampening the outlook​.

Macroeconomic Pressures Weigh on Prices

The U.S. Federal Reserve is expected to cut interest rates soon, which could increase oil demand by stimulating economic activity. However, market sentiment remains mixed as lower crude demand forecasts for 2024 and 2025 were issued by the Energy Information Administration (EIA).

The EIA now projects weaker global demand growth due to sluggish industrial activity in both China and the U.S.​. Additionally, Libya’s restored oil production to 1.25 million barrels per day adds further pressure to the supply side​.

Market Forecast: Cautiously Bullish

For the upcoming week, the market remains cautiously bullish. Geopolitical risks and U.S. supply disruptions from Hurricane Milton are likely to keep oil prices elevated, with traders eyeing potential rallies. West Texas Intermediate (WTI) could test $80 per barrel if Israel retaliates against Iran.

However, downside risks remain if demand in China and the U.S. continues to falter, especially with high crude inventories threatening to cap any significant gains. Traders should closely monitor geopolitical developments and U.S. crude stock reports for further market direction.