On Wednesday (November 20), US crude oil was trading around $69.27 per barrel during the Asian trading session, with prices remaining steady. Although geopolitical tensions provided some support for oil prices, bearish supply news and a stronger dollar made it difficult for bulls to rebound.
Supply Pressure and Inventory Data Weigh on Oil Prices
There are some bearish factors on the market supply side. Partial production resumption at Norway's Johan Sverdrup oil field has alleviated concerns about supply tightness in the global market. Furthermore, API data from the US indicated an increase in crude inventories by 4.75 million barrels for the week ending November 15, exacerbating concerns about an oversupply of crude.
Analysts point out that the upcoming US Energy Information Administration (EIA) crude inventory data will be critical to whether oil prices can continue to rebound. If the data shows a significant drop in inventories, it may provide support for the market; otherwise, it could trigger a further decline in oil prices.
Geopolitical Situation Intensifies Oil Market Volatility
On Tuesday, Ukraine used US-supplied ATACMS missiles for the first time to strike a weapons depot about 110 kilometers inside Russia. The attack caused secondary explosions, intensifying the tension in the Russia-Ukraine conflict. US President Biden previously approved Ukraine's use of these long-range missiles to launch attacks on Russia.
Russia responded strongly, stating that Western countries aim to escalate the conflict by providing such weapons. Russian Foreign Minister Lavrov warned that this move might provoke retaliation. Meanwhile, Russian President Putin lowered the threshold for deploying nuclear strikes, heightening concerns about potential disruptions to energy supplies. Analysts from ANZ bank noted that geopolitical risks have resurfaced as a focal point in the oil market.
Fed Policy Direction and Potential Impacts of the Trump Administration
In financial markets, the probability of a 25 basis point rate cut by the Federal Reserve in December stands at 59.1%, with a 40.9% chance of maintaining current rates. Market expectations of the future monetary policy path will continue to influence the dollar's movement, and a strong dollar might further constrain the rebound potential of oil prices.
At the same time, the market is paying attention to the impact of the incoming Trump administration on the energy market. According to Saad Rahim, chief economist at Trafigura, Trump's policies may more significantly affect US oil demand rather than supply. Potential measures include reversing support policies for electric vehicles and increasing trade tariffs, while the shale oil industry has entered a "harvesting phase" with limited space for new growth.
Focus on EIA and Policy Dynamics
In the short term, key variables for the oil market center around geopolitical developments and further US inventory data performance. If EIA inventory data shows a decline, it could provide upward momentum for oil prices, while Fed policy dynamics and dollar trends will continue to affect market sentiment.
Geopolitical tension provides a risk premium to oil prices, but the return of supply pressures limits the extent of oil price rebounds. Over the coming days, the market needs to closely monitor Fed policies and the energy policy of the new Trump administration to capture key driving factors in the oil market.
