Oil Finishes the Week Lower Despite Risk of Iranian Stike on Israel
December '24 WTI closed $2.29, or 3%, lower at $69.49/Bbl this week. Oil futures found support late in the week following reports that Iran may be planning a major strike on Israel, heightening concerns of a wider conflict.
Axios reported Thursday that Israeli intelligence suggests Iran may plan a major retaliatory strike on Israel from Iraq, perhaps before the U.S. presidential election on Tuesday. Following this news, WTI rose above $70/Bbl in late Thursday trading.
Despite the escalating tensions, both WTI and Brent ended the week lower, having hit a seven-week low on Tuesday, as concerns eased after Israel's recent retaliation avoided Iran's energy or nuclear infrastructure.
The ongoing cycle of strikes between Israel and Iran continues to sustain a war risk premium in crude prices. However, without direct disruptions to supply, the said premium could dissipate.
At the same time, all eyes are on what OPEC+ will do with its policy at the end of the year. The cartel plans to start unwinding cuts in December and bring back the 2.2 MMBbl/d of voluntary cuts through 2025. Yet traders are divided on whether this will proceed. Earlier this week, Reuters reported, citing unnamed sources, that OPEC+ might delay the return of previously withheld supply in December.
A Bloomberg survey showed that 16 out of 30 analysts expect OPEC+ could postpone production unwind. This expectation comes as Brent prices hit near lows last seen in late 2021, and the oil market currently lacks the appetite to absorb additional supply as indicated by IEA's projection of a 1 MMBbl/d oversupply for 2025.
AEGIS maintains a neutral outlook for 2025 based on projected oversupply and weak demand growth. Potential Middle East disruptions are not included in this base case. We expect prices to remain close to front-month levels in 2024 and recommend swaps for 2025 to ensure maximum protection.