Oil futures edged higher Monday, attempting to build on a Friday rebound that wasn’t enough to stave off a third straight weekly decline blamed on worries about the demand outlook.
West Texas Intermediate crude
for December delivery
rose 20 cents, or 0.3%, to $77.37 a barrel on the New York Mercantile Exchange.
January Brent crude
the global benchmark, was up 20 cents, or 0.3%, at $81.63 a barrel on ICE Futures Europe.
On Monday, the Organization of the Petroleum Exporting Countries, or OPEC, nudged its forecast for 2023 growth in oil demand higher to 2.5 million barrels a day, or mbd, from a projection of 2.4 mbd in October. In its November report, OPEC said the change came as revisions to demand data from members of the Organization for Economic Cooperation and Development, a club of rich countries, largely offset each other, while upward revisions for China offset downward revisions elsewhere among non-OECD countries.
Oil demand in 2024 is forecast to grow by 2.2 mbd, unchanged from OPEC’s previous assessment. On the supply side, OPEC revised up its forecast for 2023 non-OPEC growth to 1.8 mbd from 1.7 mbd, while 2024 non-OPEC liquids supply is expected to grow 1.4 mbd, broadly unchanged from the October estimate.
Brent and WTI dropped more than 4% last week for their third consecutive weekly fall. Crude last week traded at levels last seen in mid-July after more than erasing the risk premium built into the market after the Oct. 7 Hamas attack on southern Israel. Crude bounced Friday, with support tied in part to remarks by Iraq
Worries that the Israel-Hamas war could spark a broader regional conflict capable of disrupting the flow of crude from the Middle East have faded, though analysts warn that the potential for a sharp upside reaction to developments remains.
The spread between the implied volatility of similar call and put options on the ICE Brent crude oil price fell substantially last week, Edward Gardner, commodities economist at Capital Economics, observed in a Friday note.
“In fact, investors are putting a higher premium on downside risks to prices than upside,” he wrote (see chart below).
Meanwhile, the premium held by front-month oil contracts over second-month contracts has narrowed or been erased, signaling that investors are becoming less worried about supply, he noted.
Investors will look ahead to a Nov. 26 meeting of OPEC+ ministers, which may limit further downside, Gardner said.
“Ultimately, though, we still forecast that the oil market will be finely balanced over the coming months, and there is a risk that OPEC+ decide to cut supply even further if prices were to fall by more,” he wrote, with Capital Economics sticking to its forecast for Brent ending this year and 2024 at $85 a barrel.