Oil prices edged lower on Thursday, pausing a three-day rebound that was fuelled by escalating geopolitical risks. These risks include heightened tensions in the Middle East and the potential for new US energy sanctions against Russia amid reports of drone incursions into Polish airspace.
Yesterday, oil prices gained after the incidents in the Middle East and Eastern Europe. Investors are also monitoring potential US actions against Russia, which could lead to tighter sanctions and affect global supply. On a separate note, expectations of a more dovish US monetary policy could boost economic activity and oil demand in the longer term.
However, a key driver for today’s price decline was mounting evidence of softening demand in the United States. US crude inventories unexpectedly rose by 3.9 million barrels last week, signalling weaker-than-expected summer demand and contributing to concerns of an oversupply. This has led to prices easing, with pressure intensified by signs of broader economic softening in the US.
Adding to oversupply worries, the International Energy Agency (IEA) has raised its oil supply forecasts, pointing to a larger surplus ahead. This is due to increased production from OPEC+ members and non-OPEC+ producers like the US, Brazil, and Guyana. Furthermore, OPEC+ production increases add to the risks. Projections for modest global oil demand growth in 2025 suggest that supply increases will continue to outpace demand.
Traders are currently balancing concerns of weak demand and a supply glut against heightened geopolitical tensions. Prices could face further downside pressure if inventory builds continue or if economic data worsens.
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