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Middle East Tensions and Their Impact on Oil Prices
Escalation of the conflict in the Middle East over the weekend triggered a strong rebound in crude prices. The geo-political tension in the region, particularly the ongoing conflict between Israel and Iran-backed Hezbollah, have heightened concerns about regional oil supply disruptions and have fuelled speculation about potential disruptions of 3-4% of global oil supply. While the immediate impact on oil output has been minimal, the risk of a broader regional conflict could keep oil prices elevated.
Tightening Global Oil Inventories
Recent data indicates a significant tightening of global oil inventories, especially in the United States. According to data from the Organization for Economic Cooperation and Development (OECD) as of June 2024, commercial stocks of crude and refined products in advanced economies were 120 million barrels below the ten-year seasonal average, marking the lowest levels in nearly two years. In the U.S., crude inventories have dropped sharply, with a notable decline of 34.6 million barrels over eight weeks, reflecting the second-largest seasonal depletion in the past decade.
Demand Forecast Revisions Amid Economic Uncertainty
Despite the inventory drawdown, oil demand forecasts have been revised downward due to weaker-than-expected recovery in global manufacturing and freight activity. The International Energy Agency (IEA) has adjusted its global oil demand growth forecast for 2025, citing slower-than-anticipated economic recovery. The broader economic slowdown, coupled with concerns about the health of the global economy, has led to a more cautious outlook for oil consumption, despite upcoming interest rate cuts by central banks, which are likely to stimulate growth and in turn influence future oil demand.
OPEC+ Production Output Increase Plans
In June 2024, OPEC+ ministers agreed to gradually unwind production cuts starting in October 2024, with an increase of roughly 180,000 barrels per day (b/d) each month in Q4 2024 and 210,000 b/d each month through September 2025. However, these increases are conditional and could be adjusted based on market conditions. The decision to proceed with these increases or delay them will impact crude prices in the near-term.
OPEC+ Strategic Dilemma on Production Decisions
As OPEC+ prepares to make its decision, it faces a crossroads that could significantly impact global oil markets. The most prudent approach might be to delay production increases until there is clearer evidence of sustained economic recovery and stronger oil demand. Alternatively, if the group is confident in the long-term outlook, it might proceed with the planned increases, betting that the market can absorb the additional supply without a substantial drop in prices. The coming weeks will be crucial in determining the direction of global oil markets and testing OPEC+’s ability to manage supply amid ongoing uncertainties.
Source: TradingView
Crude Oil Long Term Outlook
Oil prices have declined in recent months, briefly erasing year-to-date gains, as concerns over slowing demand growth in China, increased production from non-OPEC+ countries, and OPEC+’s intentions to ease output restrictions have weighed on the market. While the cartel has previously supported prices by cutting supply at the expense of losing market share, their tentative plan to boost production could signal a shift in strategy.
Although crude oil markets are currently in a supply deficit, they are expected to reach their tightest point soon. By the fourth quarter of 2024, the market is likely to achieve equilibrium, with a potential surplus forecasted for 2025.
Amid the current conflicting macroeconomic indicators and forecasts, we anticipate that West Texas Intermediate (WTI) prices will remain range-bound between $68 and $82 per barrel throughout the remainder of 2024. Looking ahead to 2025, crude prices could settle within a slightly lower range, provided that the geo-political conflicts around the world do not escalate further, which we see as the major upside risk to oil prices.
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Notice
If you are not classified as an institutional investor, you will be categorised as a private/retail investor. At this time, we cannot send communications directly to private/retail investors. You are welcome to view the contents of this website.
If you are an ‘Institutional investor’, you affirm either that you are a Per Se Professional Client, or that you wish to be treated as an Eligible Counterparty Client, both as defined under the Markets in Financial Instruments Directive, or an equivalent in a jurisdiction outside the European Economic Area.
Risk Warnings
The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. Trading in ETPs may not be suitable for all types of investor as they carry a high degree of risk. You may lose all of your initial investment. Only speculate with money you can afford to lose. Changes in exchange rates may also cause your investment to go up or down in value. Tax laws may be subject to change. Please ensure that you fully understand the risks involved. If in any doubt, please seek independent financial advice. Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer.
This website is provided for your general information only and does not constitute investment advice or an offer to sell or the solicitation of an offer to buy any investment.
Nothing on this website is advice on the merits of any product or investment, nothing constitutes investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. Prospective investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.
This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.
United States Visitors
The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions.
Persons accessing this website in the European Economic Area
Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the “Advisers Act”).
Exclusion of Liability
Certain documents made available on the website have been prepared and issued by persons other than Leverage Shares Management Company. This includes any Prospectus document. Leverage Shares Management Company is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, Leverage Shares Management Company shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no guarantee as to the accuracy of any information or content on the website. The description of any ETP Security referred to in this website is a general one. The terms and conditions applicable to investors will be set out in the Prospectus, available on the website and should be read prior to making any investment.
Leverage Investment
Leverage Shares exchange-traded products (ETPs) provide leveraged exposure and are only suitable for experienced investors with knowledge of the risks and potential benefits of leveraged investment strategies.
Cookies
Leverage Shares Management Company may collect data about your computer, including, where available, your IP address, operating system and browser type, for system administration and other similar purposes (click here for more information). These are statistical data about users’ browsing actions and patterns, and they do not identify any individual user of the website. This is achieved by the use of cookies. A cookie is a small file of letters and numbers that is put on your computer if you agree to accept it. By clicking ‘I agree’ below, you are consenting to the use of cookies as described here. These cookies allow you to be distinguished from other users of the website, which helps Leverage Shares Company provide you with a better experience when you browse the website and also allows the website to be improved from time to time. Please note that you can adjust your browser settings to delete or block cookies, but you may not be able to access parts of our website without them.
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