Quiver Quantitative - Oil markets are poised for their third consecutive weekly decline, with West Texas Intermediate (UCO) crude fluctuating above $77 per barrel yet trending towards a 3.9% drop for the week. This downturn is being influenced by a combination of factors that signal a shift in market sentiment, primarily due to growing anxieties over global demand and an adjustment of risk associated with geopolitical tensions.
Despite a rebound in equity markets following a hawkish stance from the Federal Reserve, the oil sector hasn't mirrored this recovery, signaling that broader financial optimism hasn't spilled over into the energy commodities space. Analysts from the Royal Bank of Canada (TSX:RY), including Michael Tran, have suggested that the oil futures market might be oversold, indicating that while there could be room for short-term price increases, the overarching concern of diminishing demand could limit any substantial recovery in the near term.
The recent pullback in oil prices marks a stark contrast to the situation in late September, when OPEC+ forecasted a steep decline in global oil inventories, driven by robust fuel demand and supply adjustments. The current focus has shifted to the downstream segment, particularly in China, where refining activity has dipped, and in the US and Europe, where high interest rates and declining industrial activity are signaling a retreat in fuel consumption.
This sentiment is reflected in the structure of the WTI futures market, which has transitioned into a contango situation—where near-term oil prices are lower than those in future months—indicating an easing of the tight supply scenario that characterized the market just months ago. With US oil production reaching new highs and inventories growing, the immediate risk of supply shortages seems to be receding.
This article was originally published on Quiver Quantitative