Oil Posts its Biggest Weekly Loss Since October as Ceasefire Talks Reduce Geopolitical Risk Premium
March ’24 WTI lost $5.73, or 7.6%, this week to finish at $72.28/Bbl. Al Jazeera reported that Israel and Hamas agreed to a ceasefire proposal, prompting front-month prices to finish over $2 lower on Thursday. However, the tweet was later deleted amidst ongoing negotiations mediated by Qatar.
Prices, however, didn’t recover and fell below their 200-day and 50-day moving averages, which triggered trend-following algorithms, exacerbating the decline, according to Bloomberg.
Qatar presented a truce proposal agreed with Israeli negotiators to Hamas on Thursday with a deal for a 45-day ceasefire and the release of Palestinian prisoners in return for Israeli hostages. Early negotiations to pause attacks and release hostages indicated improving chances for a temporary ceasefire. If there is a ceasefire, it could weigh on front-month prices in the near term.
Despite the ongoing talks, Houthi militants continue to target Red Sea shipping, with the US mulling a response to a drone attack killing American troops in Jordan. The conflict has not reduced supply yet, but it has increased costs (insurance and freight).
Meanwhile, fundamentals remain unchanged, with the oil market expected to be in surplus from 2Q onwards, mostly on the back of rising non-OPEC supply.
However, OPEC+ curbed production by 0.5 MMBbl/d in January, falling short of the pledged cuts, and reaffirmed that a production cut extension is “absolutely” possible into 2Q 2024. The cartel plans to meet in early March to decide.
AEGIS continues to view OPEC+ as the primary bull-side factor and expects a balanced market in 2024, i.e. inventories remaining at a deficit to the five-year average. This scenario has the potential for a bullish outlook, particularly if Saudi Arabia and Russia continue their voluntary production cuts throughout the year.