SunSirs: Geopolitical Risks Decrease, with Crude Oil Prices Falling Over 3% on Monday

On November 25th, international crude oil futures experienced a significant decline. The settlement price of the main contract for WTI crude oil futures in the United States was $68.94 per barrel, a decrease of $2.30 or 3.2%. The settlement price of the main Brent crude oil futures contract was $73.01 per barrel, a decrease of $2.16 or 2.9%. The main reason for the decline in geopolitical risks is the bearish supply expectations.

The ceasefire agreement reduces supply risks in the Middle East

On the 25th local time, according to relevant reports, Israel and Hezbollah in Lebanon have reached an agreement on the terms of a ceasefire agreement. It is reported that the Israeli Security Cabinet is expected to approve the agreement on the 26th. Although Israel and Hezbollah have not yet responded to this, the expected ceasefire has significantly reduced the risk of crude oil supply, resulting in a short-term sharp decline in oil prices.

At present, the market is still paying further attention to the follow-up dynamics of the ceasefire, and the geopolitical risks in the Middle East have weakened, which is bearish for oil prices in the short term, but the market still needs further confirmation.

Expected increase in crude oil inventory

The previous week, data released by the US Energy Information Administration (EIA) showed an increase in crude oil and refined oil inventories. As of the week ending November 15th, EIA's commercial crude oil inventories in the US were 430.3 million barrels, an increase of 545,000 barrels from the previous week; Gasoline inventory increased by 2.054 million barrels compared to the previous week, reaching 208.9 million barrels.

On Monday of this week, a preliminary market survey showed that US crude and refined oil inventories may continue to increase last week. On average, the four interviewed institutions estimate that as of the week ending November 22, US crude oil inventories are expected to increase by about 300,000 barrels, gasoline inventories by about 300,000 barrels, and distillate oil inventories including diesel and heating oil may increase by about 800,000 barrels.

Oil producing country OPEC+continues production reduction policy to limit oil price decline

The Organization of the Petroleum Exporting Countries and its allies (OPEC+) are expected to hold their next meeting on Sunday, and the market generally expects the organization to maintain its previous production control agreement. It is expected that the current oil production reduction policy will remain unchanged from January 1st. Previously, there were rumors that the increase in production may not be realized, which greatly eased the pressure on supply, stabilized oil prices, and also limited the decline in oil prices.

In addition, the current trading range hovering around oil prices is relatively low. Considering the demand for oil prices from oil producing countries, the current market conditions are not conducive to increasing production. However, the possibility of further deepening production cuts is also not high, as this requires a very difficult balance to be achieved before all members.

The crude oil analyst of SunSirs believes that the significant drop in oil prices on Monday is due to the short-term geopolitical risk reduction brought about by the ceasefire news, and the later trend may still return to the supply and demand fundamentals. After all, the turmoil in the Middle East has not had a more than expected impact on crude oil supply. In addition, OPEC's production control policy will continue to play a regulatory role in oil prices. Considering the current low level of oil prices, it is expected that crude oil will not have a significant downward momentum in the short term, but the market should also be cautious about the risks brought by short-term adjustments.

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