Anxious oil markets are set for a “bumpy ride” in November as ongoing tensions in the Middle East and the presidential contest in the US takes place next week.
Rystad Energy predicts “a big week for oil markets” with the US elections on the horizon.
Rystad’s global head of commodity markets – oil, Mukesh Sahdev said of all events to keep an eye on, the US election looms largest, as North American crude producers explore export markets in the East, OPEC+ manages production cuts and hopes temper for a speedy economic revival in China.
“Oil markets are anxious this week, with the US elections on the horizon and China’s economic fortunes taking a rare positive turn despite tariff headwinds ahead,” Sahdev wrote.
“Israel’s recent restrained retaliation against Iran cast a bearish shadow across the market, which is already facing oversupply concerns.
“US crude production continues to expand and our forecast for the fourth quarter has been revised upward thanks to more efficient completion activity.
“Canada’s crude output could reach 5 million bpd next year as Asian markets drive increased exports from the Pacific coast.
“News of crude stock draws and a potential delay of OPEC+ cut unwinding for December is adding some support as Brent futures inch close to $73 per barrel.”
He added several international events have converged at the turn of the month that could see oil markets in for a bumpy ride in early November, including ongoing tensions in the Middle East, a continued weak demand outlook in China, uncertainty about an OPEC+ planned production hike and an extremely tight presidential contest in the US.
This note on the coming week focuses on crude oil production in North America – including western Canada, where the effects of the Trans Mountain pipeline expansion are building momentum.
These include:
An unexpected drawdown in US crude and product stocks against projected builds provided some uplift for Brent futures this week.
Crude stocks dropped by 0.5 million barrels, while gasoline and distillates stocks also declined.
Projected growth in crude stocks was expected to be in the range of 1.6 million to 2.3 million barrels across surveys.
However, the week began with a 28 October selloff, as Israel showed restraint in retaliatory attacks on Iran over the weekend, targeting only military sites and air defense systems rather than Iranian oil production facilities, nuclear sites or civilians.
The relatively restrained response — and Iran’s lack of immediate retaliation — brought a bearish sentiment to crude oil prices in a market already plagued by concerns of oversupply and weaker Chinese demand.
China’s economic stimulus efforts so far have struggled to produce the expected results quickly enough, and demand projections were further complicated by the European Union’s announcement of a tariff hike lasting five years on electric vehicles manufactured in China.
Next week’s US elections, and the potential of even more tariffs if former President Donald Trump returns to the White House, will continue to put backpressure on China’s stimulus efforts.
China’s manufacturing PMI rose to 50.1 in October, marking its first growth in six months, while non-manufacturing PMI also improved, signaling early effects of recent stimulus efforts.
Yet, challenges like weak producer prices and sluggish external demand persist, as policymakers aim to sustain this momentum toward a 5% growth target.
The 5 November US election outcome certainly has some potential to affect the supply fundamentals related to the North American crude production outlook.
An increase in US production and Canadian crude reaching Asian markets are factors that OPEC+ will be watching carefully.
Rystad Energy has been calling for the extension of cuts by OPEC+ for some time and that the group’s main goal should be to sustain backwardation in the crude market, rather than a certain price level.
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