Oil prices rebound amid market volatility

Oil climbed from its lowest closing since 2021 after a severe weekly loss pushed futures near oversold levels, with three reports expected this week to clarify the demand forecast.

Brent, the global standard, moved toward US$72 per barrel after dropping over 10% last week, while West Texas Intermediate rose above US$68.

Oil's recent losses have been driven by signs of slowing in the United States and China, putting demand at risk despite sufficient supply. The decline left the 14-day relative strength index at 31, indicating that losses may have been excessively quick and steep.

The recent oil market volatility has caught the attention of industry analysts, who are closely monitoring the situation. Many experts believe that the current price fluctuations are a result of complex geopolitical factors and shifting global economic conditions. As one senior analyst at a major energy consultancy noted, "We're seeing a perfect storm of factors influencing oil prices right now, from concerns about Chinese demand to ongoing tensions in the Middle East."

Traders will gain valuable market insights this week when three major forecasters — Opec, the Energy Information Administration, and the International Energy Agency — release monthly outlooks. In addition, the Asia Pacific Petroleum Conference, a major industry meeting, is held in Singapore.

Crude has fallen for the previous three weeks as the broader market sentiment has turned pessimistic, joining other commodities and equities in a massive selloff that has alarmed investors.

Despite the recent downturn, some industry insiders remain cautiously optimistic about the long-term prospects for oil. A spokesperson for a leading oil and gas company stated, "While we're certainly seeing some short-term challenges, the fundamentals of global energy demand remain strong. We expect to see a rebalancing of the market in the coming months as supply and demand dynamics adjust."

There has also been broad weakness in product markets, such as US gasoline and European diesel. The decline forced Opec+ to postpone a plan to ease supply limitations for two months.

The start-of-week rise came despite Saudi Arabia's decision to lower the price of its flagship grade for its key market in Asia next month, citing a weak demand expectation.

Environmental concerns continue to play a role in shaping the oil market landscape. With increasing pressure on governments and corporations to address climate change, many investors are closely watching how the industry adapts to these challenges. One energy policy expert commented, "The transition to cleaner energy sources is undoubtedly impacting oil market dynamics, but it's a gradual process. In the short to medium term, oil will remain a critical component of the global energy mix."

According to a price list obtained by Bloomberg, state-owned Saudi Aramco reduced the official selling price of Arab Light for Asian buyers by 70 cents to US$1.30 a barrel against the regional benchmark.

WTI for October delivery rose 1.2% to US$68.46 per barrel. The market's turmoil is reflected in widely followed timespreads, which indicate that physical circumstances are getting less tight.

The impact of technological advancements in oil extraction and production methods continues to be a significant factor in market dynamics. Innovations in areas such as hydraulic fracturing and enhanced oil recovery techniques have increased supply capabilities, potentially putting downward pressure on prices. However, as one industry technologist pointed out, "These technologies also allow for more efficient and cost-effective production, which can help stabilize prices in the long run."

Brent's immediate spread, or the difference between its two nearest contracts, was 38 cents per barrel backwardation. While this remains a good pattern, typified by a premium for the closer contract, the gap was more than US$1 two weeks ago.