Oil Prices Dip as Markets Expect Supply to Exceed Demand Amid Lower Geopolitical Tensions

Key Takeaways:

• Oil prices fell over 4% following limited Israeli action on Iranian targets, easing concerns over potential energy disruptions.
• Indian refineries like HPCL, BPCL, and IOC to benefit from reduced crude costs, though exploration firms may face reduced returns due to lower prices.
• Past year fluctuations caused due to major factors including geopolitical tensions, US economic trends, China’s market, and OPEC+ production adjustments.

Crude Oil Price Down Due to Market Dynamics

• Oil prices slid more than 4% on Monday as Israel’s strikes on Iran over the weekend were dubbed as “limited” by local media, with Citi analysts discounting chances of an escalation that disrupts oil supplies.
• Futures for global crude benchmark Brent slid 4.34% to $72.75 a barrel, while U.S. West Texas Intermediate futures dropped 4.54% to $68.52 per barrel. MCX Crude oil prices opened at 5776 with a fall of 4.37%.

Demand and Supply Insights: Crude Oil’s Global Shifts

• In their Commodities Daily feed, Warren Patterson, Head of Commodities Strategy of ING Think, and Ewa Manthey, Commodities Strategist, said oil prices opened lower on Monday morning with ICE Brent trading more than 4 per cent lower.

• Stating that this weakness comes despite Israel finally responding over the weekend to Iran’s recent missile attack, they said Israel’s response appears to have been measured with only Iranian air defence and missile production facilities targeted.

• “The concern for the market had been if Israel targeted Iran’s energy or nuclear infrastructure. The more targeted response from Israel leaves the door open for de-escalation and clearly the price action in oil this morning suggests the market is of the same view. While it is still unclear if or how Iran may retaliate, the government has downplayed the damage caused by Israel’s response,” they said.

• Any moves of de-escalation of tensions would allow fundamentals once again to dictate price direction, they said, adding: “and with a surplus market over 2025, this would mean that oil prices are likely to remain under pressure.”

Petroleum News: Factors Affecting Oil Prices

• The past year (Smavat 2080) has been tumultuous for crude oil prices, marked by major fluctuations influenced by geopolitical tensions, economic indicators, and production decisions by major oil-producing nations, analysts said.

• Brent crude oil prices saw a considerable decline from the beginning of Samvat 2080 (November 12, 2023) until October 28, 2024 dropping by 12.33 per cent from $82.52 to $72.34 per barrel, with a yearly high of $92.18 and a low of $68.68 per barrel, data from investing.com showed.

• Recent oil market volatility stems from several key events. In early 2024, positive US economic data, with growth reaching 4.5 per cent in Q1, and China's property market stimulus temporarily boosted demand, pushing WTI crude prices above $85 (a 19 per cent year-to-date rise). OPEC+ production cuts also supported this upward trend.

• However, in Q2, China's economic decline—marked by falling factory activity and domestic consumption—resulted in a 3.1 per cent drop in crude oil demand from January to September. While US driving demand increased seasonally, it could not offset the rising non-OPEC+ supply, especially from the US, Brazil, and Mexico, which added 1.2 million barrels per day (mbpd) to global production. This combination shifted the market into surplus by Q3.

Expert Opinion: Impact of Oil Price Trends for Indian Refiners

• It is anticipated that Indian refiners, especially Hindustan Petroleum Corp (HPCL), Bharat Petroleum Corp (BPCL), and Indian Oil Corp (IOC), may see favorable conditions in the market with recent shifts in crude prices. HPCL has already shown a 3.5% rise, while BPCL and IOC posted gains of 0.5% each, reflecting optimism among refiners due to a decline in crude oil prices.

• With crude oil dropping over 4% after Israel's recent retaliatory actions avoided any disruption to Iran's energy facilities, refining companies are likely to benefit from lower input costs, a positive factor given crude oil’s central role as a raw material for them. On the contrary, this price drop could weigh on exploration firms due to decreased realizations.