Istanbul, June 25, 2024: Oil prices have witnessed a noticeable decline over the past two days, shedding some of the gains they had made in recent weeks. This comes amidst a complex interplay of factors, including geopolitical and global economic dynamics, along with demand and inventory trends.
Price Decline: Causes and Impacts
Brent crude fell by around $2 to reach $84.70 per barrel, retreating from its high of $86.80 last week, while West Texas Intermediate (WTI) also declined by around $2 to reach $79.50 per barrel, after touching $81.50 earlier in the month.
This price drop can be attributed to a combination of factors, including:
- Risk Aversion: A wave of anxiety is gripping global financial markets, with Asian, European, and US stocks experiencing significant declines, driven by concerns over a slowing global economy and rising inflation rates.
- Rising Dollar: The appreciation of the US dollar against major currencies has increased the cost of oil for investors holding other currencies, adding further pressure on prices.
- Attacks on Ships: Despite escalating attacks on ships off the coast of Yemen, which were expected to support oil prices due to concerns over energy supplies, their impact has been relatively limited due to broader global factors.
Factors Supporting Prices and Future Outlook
Despite the current pullback, there are still factors that support oil prices in the medium to long term, including:
- Q3 Deficit Expectations: Market analysts suggest a potential deficit in the oil market during the third quarter of the year, signaling a possible return to rising prices.
- Rising Demand: Indicators show increasing demand for gasoline in the United States, the world’s largest oil consumer, in addition to growing air travel, which provides positive support for oil prices.
- Waning Speculation: Speculators have turned more positive on oil as summer approaches, which could boost prices in the coming period.
Iran’s Elections and Their Impact
It is worth noting that the early presidential elections taking place in Iran on Friday, following the death of President Ebrahim Raisi in a helicopter crash last month, could cast a shadow over the path of oil prices.
These elections come at a time of heightened tensions between Iran and the West, and therefore, investors are cautiously watching the outcomes and their potential impact on international relations and the oil market.
Potential Scenarios
In the face of these complex circumstances, the oil market faces multiple possibilities, including:
- Short-Term Price Rise: The return of strong demand during the summer, coupled with geopolitical concerns related to Iran, could lead to a rebound in oil prices in the coming period.
- Continued Volatility: Oil prices may continue to fluctuate in the short term, influenced by global economic factors and geopolitical developments.
- Long-Term Uptrend: Some projections suggest that rising oil demand in the coming years, coupled with continued supply constraints, could push oil prices into a long-term uptrend.
Conclusion
The oil market faces significant challenges amidst complex dynamics encompassing geopolitical and global economic factors, along with demand and inventory trends. Developments in Iran, including the early presidential elections, play a crucial role in determining the market’s trajectory during the coming period.
Despite temporary pullbacks, some indicators point to the possibility of prices returning to an upward trend in the short to medium term, driven by factors such as seasonal demand, waning speculation, and Q3 deficit expectations. However, geopolitical and global economic risks remain elevated, which could lead to continued volatility in oil prices in the short term. Over the long term, oil demand is expected to remain robust, potentially supporting prices in general, but this remains contingent on advancements in technology, renewable alternatives, and energy efficiency measures worldwide.
