Oil News: Sverdrup Restart Pressures Prices as Market Awaits Fresh Catalysts

Oil Prices Weaken as Mixed Supply and Demand Signals Emerge

Light crude oil futures declined slightly on Tuesday after a significant rebound in the previous session, where prices surged above the key Fibonacci support at $68.52. However, traders remain cautious as resistance looms near the 50-day moving average at $69.95 and the 50% retracement level at $70.72. While Monday’s recovery appeared driven by short-covering, sustained gains depend on a breakout above these levels, with the 200-day moving average at $73.05 as the next key target.

Sverdrup Restart Adds Pressure as Geopolitical Risks Lend Support

The partial restart of Norway’s Johan Sverdrup oilfield, Europe’s largest, exerted downward pressure on prices. The facility had been offline due to a power outage, which supported a 3% price increase on Monday. Equinor confirmed production has resumed, easing concerns over tight supply.

Conversely, geopolitical tensions surrounding the Russia-Ukraine war continue to support oil markets. The Biden administration’s decision to allow Ukraine to target Russian territory with U.S.-supplied weapons has raised fears of potential escalation, prompting a warning from the Kremlin. This tension has led to cautious sentiment among investors, contributing to underlying price support.

Dollar Strength and Ongoing Outages Influence Market Sentiment

A strengthening U.S. dollar has further pressured crude prices, making the commodity more expensive for holders of other currencies. The dollar’s proximity to a one-year high complicates price recovery for oil, which remains sensitive to currency movements.

Supply-side constraints persist as Kazakhstan’s Tengiz oilfield reduced output by 28-30% for maintenance. The cuts are expected to last until Saturday, keeping some upward pressure on crude prices.

China’s Weak Demand Undermines Bullish Outlooks

China’s weakening crude demand is a growing concern. October’s crude surplus fell to 550,000 barrels per day (bpd) from 930,000 bpd in September, as both imports and refinery runs declined. Refinery utilization dropped to 58.7% for independent plants, reflecting poor margins and sluggish gasoline and diesel demand. Structural changes, including the adoption of LNG-powered trucks and electric vehicles, further dampen China’s long-term demand projections. OPEC’s recent downward revision of its 2024 demand growth forecast highlights these challenges.

Market Forecast: Bearish Outlook Prevails

Crude oil prices are likely to face downward pressure in the near term. Supply recovery from Sverdrup and sluggish Chinese demand, compounded by a robust U.S. dollar, outweigh the bullish factors of geopolitical risks and ongoing outages. Unless resistance near $70 is breached, the market is expected to remain under selling pressure with a bearish tilt.