By Giulia Petroni
Here's a look at what happened in oil markets in the week of Oct. 21-25 and what the focus will be in the days to come.
OVERVIEW: Oil prices are headed for modest weekly gains on concerns over Middle East developments. Brent crude, the international oil benchmark, trades around $75 a barrel, while the U.S. oil gauge West Texas Intermediate is around $71 a barrel. The benchmarks are up between 2% and 3% on the week, after fluctuating significantly in the past few days due to geopolitical risks and lingering demand concerns. "Crude oil futures have settled into a nervous wait-and-see mode, with major two-sided risks keeping prices rangebound for now," Saxo's head of commodity strategy Ole Hansen said in a research note.
MACRO: It's been a broadly quiet week in terms of macro data. Markets now wait for the U.S. presidential election on Nov. 5 and the Federal Reserve's policy meeting on Nov. 6-7, with traders largely expecting the U.S. central bank to opt for a smaller 25-basis-point reduction in borrowing costs.
Investors are also waiting to get more clarity on China's stimulus policies to revive the economy amid widespread concerns over the country's demand outlook, especially after two major forecasters--The International Energy Agency and the Organization of the Petroleum Exporting countries--lowered their estimates for global oil-demand growth for the third time in a row.
GEOPOLITICAL RISKS: U.S. and Israeli negotiators are set to meet again in the coming days to resume ceasefire talks. But Israel's intensifying strikes on multiple fronts and uncertainties over the country's response to Iran's missile barrage are leaving the oil market on edge.
Tensions in the Middle East also continue to be reflected in the Brent options market. According to analysts at ING, data shows call options are becoming increasingly more expensive than puts as participants buy protection in the event of a price spike.
SUPPLY AND DEMAND: The latest weekly report from the Energy Information Administration showed commercial crude oil stockpiles rose by 5.5 million barrels to 426 million barrels in the week ended Oct. 18, while gasoline stocks increased by 878,000 barrels to 213.6 million barrels. A build in stockpiles is typically a sign of softer demand, but in this instance it was also due to a rebound in crude imports due to hurricane season. "All in all, despite the rise in stocks, this was a report without much impact on prices," analysts at Commerzbank Research said.
WHAT'S AHEAD: At a macro level, investors will be focusing on U.S. gross domestic product estimates for the third quarter, the Personal Consumption Expenditures Price Index--a key inflation index used by the Fed--initial jobless claims and unemployment data all due next week.
Meanwhile, important indicators will also be released with the purchasing managers' indices in China. "There's a chance that sentiment indicators could have brightened somewhat in October," Commerzbank analysts said. "However, we are not overly optimistic."
Write to Giulia Petroni at giulia.petroni@wsj.com
(END) Dow Jones Newswires
10-25-24 1159ET
