Analysis Energy
Oil market struggles to choose direction
The oil market is currently in balance. Geopolitical tensions in the Middle East are being offset by weak American demand. In addition, the expectation that air traffic could increase significantly at any moment keeps the price high.
Compared to last week, the oil market has taken a small step down. Looking at the bigger picture, the oil market is mostly stable. On Thursday, June 20, oil was traded at $85.71 per barrel. The Brent benchmark reached its highest point of the week on Monday, June 24, trading at $86.01 per barrel. The next day, oil hit the lowest point of the week, trading at $85.01. At the time of writing (Thursday, June 27), oil has risen in price to $85.05.
This week, the oil market does not take a clear position. Despite escalating geopolitical tensions in the Middle East, there is little upward potential. Since Israel's Minister of Foreign Affairs Yisrael Katz indicated last week that a 'total war' against Lebanon was being discussed behind the scenes, there are concerns about further escalation in the region. This tempered the statements of Israeli Prime Minister Benjamin Netanyahu that the intensive phase of the war against Hamas is coming to an end. However, reports that the United States is influencing Israel are dampening the upward momentum a bit.
American market remains dominant
Additionally, concerns about demand continue to dominate the American oil market. Contrary to market expectations, oil reserves have increased. Last week, the reserves increased by 3.6 million barrels in total, according to data from the American Energy Agency (AEA). A leading Reuters survey showed that economists had expected the reserves to decrease by 3 million barrels.
The summer vacation is also approaching in the United States. Generally, the demand for oil increases during this period as many Americans travel far away by car or plane to visit family. It should be noted that we are still at the beginning of this period. Nevertheless, retirees and people without school-age children are already starting their trips during this period to avoid the worst holiday crowds. It is all the more remarkable that distillate reserves have also increased by 2.7 million barrels. This indicates that the high level of oil reserves is not due to an increase in production but is created by low demand. Given the time of year, the market's expectation was that distillate reserves would increase by much less, namely 1.1 million barrels.
Tightness in the third quarter
However, weak demand in the American market does not really create pressure. Analysts in the oil market still expect that the market will be tight due to increased air traffic. Recent reports on the aviation sector all confirm that air traffic is back to pre-pandemic levels. Therefore, some in the market expect that the currently ample oil market could turn into tightness at any moment.
The diesel price chart shows a similar plateau. On Thursday, June 20, diesel was traded at €131.71 per 100 liters. The price has since dropped to €131.37.
