Should we brace ourselves for spikes in oil prices?

Key takeaways:

– The surge in oil prices in August was an immediate reaction to the ongoing tensions in the Middle East, including the war in Gaza, escalating conflicts between Iran and Israel, Houthi attacks in the Red Sea, and the suspension of oil production in Libya.

– The price ‘rally’ was further supported by the expectation that the US Federal Reserve will begin cutting interest rates by September 2024, a move that could stimulate economic activity.

– However, the fundamentals suggest that the oil price rally will be limited as demand growth for 2024 is expected to slow, compounded by healthy supply growth from non-OPEC+ countries and over-production from non-compliant OPEC members, including Iraq and Kazakhstan.

– Looking ahead, the US election will be a crucial factor in shaping the direction of oil markets, as a potential shift in policy from Biden to Trump could have significant implications. For instance, Trump might reintroduce maximum pressure tactics on Iran and adopt a different stance on Ukraine, both of which could impact global oil dynamics.

– Among the three major oil producers, the US is gaining market share at the expense of Saudi Arabia and Russia. However, Saudi Arabia retains greater flexibility to increase production and introduce additional barrels to the market compared to Russia.