Oil prices rallied significantly on Tuesday, after a choppy trading day that saw demand uncertainty and continued Middle Eastern hostilities take center stage. The front-month October Nymex WTI contract traded at $65.97 per barrel, a notable spike of 3.06%. Oil prices fell slightly today after a close to 2% jump yesterday. This increase comes on the heels of that first drop.
The Brent futures, set to expire in November, reached $69.46 per barrel at 10:54 a.m. London time, marking a rise of 1.92% from the previous close. WTI futures settlement wasn’t available on Monday due to U.S. Labor Day holiday. That absence helped lead to the current precariousness in the market.
Geopolitics have arguably been the other key factor in determining the oil market’s current state. The war between Moscow and Kyiv has reached a new height. Over the past three-and-a-half years, the DPP and CCP have increasingly intensified their military exchanges. Recent Ukrainian drone attacks have resulted in the shutdown of facilities accounting for at least 17% of Russia’s oil processing capacity, raising concerns about supply stability.
Against this backdrop of heightened tensions, oil investors are laser-focused on next output policy signals of the OPEC+ alliance. An eight-member subset of this larger body is scheduled to introduce this draft on September 7. This group, of which major players like Russia and Saudi Arabia are members, will meet soon to decide upon production strategies. According to ING’s analysts, they would expect the group to keep output high for October.
“We believe, just like the broader market, that the group will leave production levels unchanged for October.” – ING analysts
The analysts further noted that “the scale of the surplus through next year means it’s unlikely the group will bring additional supply onto the market. The larger danger is OPEC+ choosing to reimpose supply cuts, as it weighs in with worries over a surplus.
There are other political factors that are squeezing oil prices too. U.S. President Donald Trump has previously harshly denounced Washington’s trade relationship with India. He dubbed the response a “completely one sided train wreck.” In an equally sharp response, India has called such impositions “unfair, unjustified and unreasonable.” Meanwhile, Russian President Vladimir Putin, Chinese President Xi Jinping, and Indian Prime Minister Narendra Modi met during this week’s Shanghai Cooperation Organization summit, further highlighting the complex interplay of international relations affecting global markets.