This week witnessed a significant decline in international oil prices, dropping by more than 3%. The ceasefire agreement between Israel and Hezbollah has largely alleviated the risk premium associated with the potential for broader conflict in the Middle East. As a result, market attention has now shifted toward the upcoming OPEC+ ministerial meeting, which has been postponed from the weekend to December 5.

Varga, a senior market analyst from PVM Oil Associates, indicated that the market now faces several new uncertainties, including the potential impact of tariff policies that could reintroduce inflationary pressures, hindering economic growth. He further noted that unless there are drastic changes in the Middle East situation, supply should be sufficient to meet demand next year, thereby limiting any room for oil price escalation.

The ongoing concern is how OPEC will manage stability on the supply side. In a recent statement released on Thursday, OPEC announced that the 57th Joint Ministerial Monitoring Committee (JMMC) meeting, originally scheduled for December 1, 2024, would be moved to December 5 to be conducted via video conference due to some representatives attending the 45th Gulf Cooperation Council Summit in Kuwait.

According to Varga, given the current macroeconomic framework and supply-demand dynamics, it seems reasonable to postpone production increases once again. However, the challenge lies in how to define the timeline and assess future prospects. Anticipating similar resistance as seen in previous meetings, it will require coordination from Saudi Arabia and Russia to navigate these internal tensions within OPEC+ effectively.

The recent ceasefire between Israel and Hezbollah has resulted in a decline in the risk premium, exerting pressure on international oil prices. Guller, a senior market analyst, remarked that the ceasefire has eased tensions in the region and served as a stabilizing factor for oil prices.

This year, geopolitical factors have acted as a catalyst for multiple volatility spikes in oil prices. Analysts widely agree that while ongoing geopolitical tensions and sanctions on Iran can provide some support for oil prices, the effects are likely to be limited. Hansen, the head of commodity strategy at Saxo Bank, emphasized in a report shared with First Financial that even if Iranian exports decline, it would create room for growth among other producers, rendering the overall impact manageable.

This week, several OPEC+ member states began discussions to postpone the planned resumption of oil production scheduled for January. Reports indicate that Iraq, Saudi Arabia, and Russia reached an agreement during a meeting in Iraq on the importance of maintaining stable oil markets and fair pricing. The discussions revolved around the global energy market's conditions and concerns related to crude oil production, market dynamics, and meeting demand.

Industry data reveals that OPEC+ contributes to nearly half of the global oil production capacity. Due to declining prices, weak demand, and increased output from outside the group, OPEC has continued to delay its plans to gradually increase production this year.

Global attention is now focused on energy policies. According to the U.S. Energy Information Administration (EIA), American crude oil production capacity has remained near the historical peak of approximately 13.5 million barrels per day as of November. With the nomination of key energy officials, it appears that U.S. oil producers will have full government support over the next four years. The previously dormant shale oil supply may see a resurgence, potentially further increasing U.S. crude oil capacity.

Concerns about demand persist. Given the macroeconomic uncertainties, international oil prices have faced ongoing pressure since the fourth quarter.

OPEC has lowered its oil demand growth forecast for the fourth consecutive month, predicting demand growth of 1.82 million barrels per day and 1.54 million barrels per day for this year and next, respectively, down from earlier estimates of 1.93 million and 1.64 million barrels. The International Energy Agency (IEA) has warned that the market may experience an excess of over one million barrels per day next year, which could be exacerbated if OPEC+ chooses to boost supply further.

A new focal point on the demand side is the sluggish economic performance in Europe. The Eurozone's composite Purchasing Managers' Index (PMI) fell to its lowest point since February, reigniting concerns about a possible recession in the area. The service sector, which has supported the two largest economies in Europe, is now experiencing pressure; Germany's service industry shrank for the first time since March, and France's economy, buoyed in August by the Olympics, has now stagnated.

Of particular note is the French government's plan to raise taxes, which could severely impact economic prospects, pushing the gap between ten-year French and German bonds to a new high of 90 basis points since the Eurozone sovereign debt crisis in 2012. According to UniCredit Bank, "the situation remains unstable, and we cannot rule out the possibility of further widening in the France-Germany spread."

Beyond Europe, the potential for demand for fossil energy in the U.S. is relatively limited, despite its leading position among developed economies. An analysis shows that U.S. refineries supplied an average of 19 million barrels of various oil products daily in 2013, which progressively increased to 20.8 million barrels per day by 2019. However, following the pandemic, last year and this year, the scale has only rebounded to around 20 million barrels per day, with gasoline and distillate oil consumption likely having peaked. On the other hand, hopes of controlling oil prices to curb inflation imply that inventory pressure may continue to rise.

Varga anticipates that should OPEC+ decide to postpone amending the production cut agreement again, it could temporarily boost oil prices, while a drop in temperatures could also aid a rebound in prices. However, there is growing awareness of the potential negative consequences of U.S. tariffs and a widely expected surplus in supply next year, suggesting that any upward momentum may not be reliable.

Furstil, head of European oil and gas research at HSBC, noted in a client report, "We expect OPEC+ to announce an extension of the production cut agreement for an additional three months, until April 2025. Given that oil prices are at a low point of $70 per barrel, we do not rule out the possibility that OPEC+ will delay production increases until later next year."