Making sense of market moves
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While stocks, precious metals, and even bitcoin have all had a stellar year so far—oil’s path has been far more slippery.
Crude prices have been all over this place this week alone. Yesterday, oil jumped 3.26%, extending its two-day rally in the wake of heightened conflict in the Middle East. Both Iran firing missiles at Israel and Israeli troops invading Lebanon marked serious escalations in the region.
But today, oil pared back some of its gains after the US government reported higher crude stockpiles.
These are just the latest moves up and down in what has become a wild year for oil, with no end to the madness in sight.
“Bottom line, the clear takeaway from the price action in the oil market so far this week is that volatility in the energy complex is on the rise amid growing macroeconomic uncertainties between global supply threats, and the emergence of worrisome evidence that consumer demand is potentially beginning to decline,” wrote analysts at Sevens Report Research in a note.
What’s been happening with oil?
It hasn’t been an easy year for oil. Energy officially became the worst-performing sector of the third quarter thanks in no small part to oil’s decline over the past few months as demand from China weakened amid the country’s economic slowdown.
Oil fell 16% over the third quarter, and is down about 4% year to date, according to data from DataTrek.
Another major headwind is rising output from oil-rich countries like Libya and Saudi Arabia. Last week, the Financial Times reported that Saudi Arabia is planning to increase its oil production to take back market share. Oil fell about 3.7% after the news broke that day, though UBS analysts believe the commodity will rebound.
“With likely further oil inventory declines ahead as supply lags demand growth, and given low speculative positioning, we retain our positive price outlook and expect Brent crude oil to move back up above USD 80 per barrel over the coming months,” wrote UBS CIO of Americas Solita Marcelli in a note last week. That’s about 12% higher than where the commodity is currently trading today.
Should you add oil to your portfolio? The answer largely depends on tensions in the Middle East. If fighting continues to escalate and threaten the supply of oil from the region, crude could rise even further.
“How Israel responds to the attacks and the subsequent reaction from Iran could easily send WTI futures up or down by 5%+ from yesterday’s close in the mid-$70/ barrel area,” analysts at Sevens Report Research wrote today.
Looking ahead…The US Energy Information Administration forecasts Brent crude oil will reach $84 per barrel in 2025, though Goldman Sachs analysts now believe it will remain between $70 and $85—and more likely at the lower end of that range.—LB