Crude oil futures have settled into a nervous wait-and-see mode, with major two-sided risks keeping prices rangebound and stuck for now. Having witnessed a slump below USD 70 last month, followed by an attempt to break above USD 80, Brent crude has settled into a relatively narrow range around USD 75. While the activity points to calm markets, plenty of risks continue to build, which could see the price once again test either of the two mentioned boundaries.

Besides stimulus news from China, the main short-term upside risk to prices remains related to developments in the Middle East, and not least the impact of an expected Israeli attack on Iran in retaliation for the 1 October missile attack, when Iran launched nearly 200 ballistic missiles at Israeli targets. Such an attack may lead to further destabilisation, and if Iran's energy infrastructure is damaged, it raises the risk of supply concerns from a region that accounts for about a third of world output.

Brent crude has settled into a relative tight range around USD 75 – Source: Saxo

Meanwhile, the downside risks are multiple, with the upcoming US elections increasingly becoming a binary event that may impact risk appetite across markets. Not least after the latest polls have raised the prospect of a ‘Red Sweep' on November 5, where the Republican party may end up controlling both the White House and Congress. This scenario raises concerns about excessive government spending, pushing the debt-to-GDP ratio higher, while fueling inflation fears. As a result, we are currently seeing US rate cut expectations being lowered, while Treasury yields and the dollar are tearing higher—all developments that, together with Trump's tariff plans on imports from China and other countries, may end up dampening economic growth and, with that, the demand outlook in both the US and China.

WTI Crude oil has settled into a range near USD 70 with focus on EIA's weekly crude and fuel stock report, which according to surveys and the API is expected to show a weekly rise, the second in a row. – Source: Saxo

In addition to demand concerns, the market also has to deal with the prospect of OPEC+ adding currently unwanted barrels back into the market from December. Responding to falling prices, the OPEC+ group of producers has, since November 2020, repeatedly been cutting output to support stable and high prices. While stability, until recently, was successfully achieved, the higher price target has failed, not least due to a major slump in China's oil demand growth.
Saudi Arabia, the biggest contributor with around 1 million barrels of these cuts, has, in the past couple of years, seen its crude revenue and market share slump. The outlook for slowing demand growth, not least in China, has probably prompted them to accept a lower price tag for crude and, with that, the need to increase production.

In the coming months, the direction of travel will be determined by several major developments, such as the impact of the US election result, the pace of electrification, not least in China, which is approaching peak demand for gasoline and diesel; the impact of rate cuts on economic activity; OPEC's ability to manage production increases without lowering prices; and not least geopolitical developments.
Source: SAXO