Moneycontrol Pro Panorama| Oil glut

Oil prices are unlikely to increase significantly unless triggered by either a supply shortage or arising geopolitical tensions.

Dear Reader,

The recent conclusion of the Syrian Civil War, which began in 2011, has stirred a subtle shift in the global oil market, yet the anticipated impact on oil prices has been surprisingly muted. Traditionally, any upheaval in the Middle-East would send ripples through oil prices. However, the current dynamics reveals a more complex landscape.

While not a major global oil producer, Syria holds a strategic position as the only significant crude oil-producing nation in the Eastern Mediterranean, encompassing Jordan, Lebanon, Israel, and the Palestinian territories. Despite this strategic importance, oil prices have barely budged following the end of hostilities in Syria.

Instead, they have faced downward pressure following Saudi Arabia's unexpected decision to cut prices for Asian buyers significantly. Saudi Aramco announced a reduction in its premium for Arab Light crude from $1.70 to just 90 cents per barrel above the regional benchmark for January sales—far below market expectations of a decrease to around $1.

This price adjustment is not limited to Asia; Saudi Aramco has similarly reduced premiums for markets in north-west Europe and the Mediterranean while maintaining prices for North America.

Brent crude is trading at just over $71 per barrel while West Texas Intermediate (WTI) is around $67 per barrel, with prices remaining relatively stable since a ceasefire was declared between Israel and Hezbollah.

The OPEC+ cartel, led by Saudi Arabia and Russia, has opted to maintain its current production levels and delay any announcements regarding production increases. This marks OPEC+'s third consecutive three-month delay by OPEC+, underscoring the persistent oversupply in the market.

Analysts predict this trend may continue well into 2025 due to two primary factors: a sluggish Chinese economy and an anticipated increase in oil supply from the United States.

China, the world's largest oil importer, continues to grapple with weak demand despite government stimulus efforts. Recent data from November painted a bleak picture of declining factory output. Meanwhile, US President-elect Donald Trump's pro-drilling stance in the US has led to a steady rise in oil and natural gas rigs since his election victory, signalling an increase in domestic production. During his campaign tour, Trump regularly used the slogan 'drill, baby, drill' promising a fracking boom (for Shale oil) promising to make America energy independent and even dominant again.

In this context, Syria's situation appears too small to concern OPEC+, which is preoccupied with larger issues such as fluctuating Chinese demand and rising US supply. Oil prices are unlikely to increase significantly unless triggered by either a supply shortage or geopolitical tensions arising from new sanctions against Iran or other oil-producing nations, which is a strong possibility now that Trump is back as the President. 

What else are we reading?

Europeans need to learn some lessons about power — and fast (republished from the FT)

Technical Picks: SBIN, NATCOPHARM, ASHOKA