Oil boiled on escalating Israel and Ukraine war tensions

·         But oil also stumbled as Israel may not launch any serious retaliatory attack on Iran oil or nuclear facility at least before US election in Nov’24; gold also slips

Oil surged in the last few days from a low around $65.00 to $78.50 on increasing geopolitical tensions (Gaza and also Ukraine war), and fading hopes of an imminent ceasefire (even temporary). On Monday, Gold jumped from around 76.50 to almost 78.50 after an unconfirmed report that Israel may have launched an attack on a Iran nuke/nuclear facility, while Ukraine also claimed a strike on Russian oil/refiner facility.

But Oil also stumbled early Tuesday Asian session after no confirmation about these strikes. Also China’s stimulus meeting disappointed risk rally; metals/copper and oil slip as a briefing from the Chinese National Development and Reform Commission (NDRC) signaled no additional stimulus measures for the time being. However, Chinese NDRC announced plans to speed up special purpose bond issuances (CNY 6T ~$0.85T) to support economic growth (through fiscal stimulus/local Govt. capex). As a recapitulation, before the Golden week holiday, last month, China unveiled comprehensive economic support measures (monetary and fiscal stimulus) including a reduction of banks’ reserve requirements and key repo/reverse repo rates. The PBOC also cut key lending rates by -10 bps in July in an unexpected move.

On Tuesday, China’s economic planner NDRC outlined new measures to support the struggling economy but stopped short of introducing major new stimulus. During a press briefing Tuesday, Zheng, the Chairman of the NDRC, announced a special purpose bond issuance to local governments to spur their economic output. The NDRC explained that ultra-long special sovereign bonds totaling CNY 1 trillion have been fully allocated for regional projects/infra stimulus. China usually spend almost 75% of infra fiscal stimulus through local/state governments rather than Federal government levels.

Additionally, the central government will roll out a CNY 100 billion investment plan for next year by the end of this month, earlier than expected. The briefing coincided with the reopening of Chinese markets after the Golden Week holiday, which started on 30th September. Before the holiday, authorities committed to strengthening fiscal and monetary policy support and unveiled stimulus measures to revive the property market. The NDRC Chairman Zheng acknowledged many difficulties and problems remain in achieving China’s growth targets.

On 2nd Oct’24, OPEC said in the official statement after latest JMMC meeting:

“The Joint Ministerial Monitoring Committee (JMMC) reviewed the crude oil production data for the months of July and August 2024 and current market conditions.

During the meeting, the Republic of Iraq, the Republic of Kazakhstan, and the Russian Federation confirmed that they had achieved full conformity and compensation according to the schedules submitted for September. The three countries reiterated their strong commitment to maintaining full conformity and compensation throughout the remaining period of the agreement.

The final assessments of September crude oil production levels will be based on the approved secondary sources providing data on production of countries participating in Declaration of Cooperation (DoC), which will be available by the second week of October 2024.

The Committee noted the three separate technical workshops between representatives from the Republic of Iraq, the Republic of Kazakhstan, and the Russian Federation and the secondary sources aimed at discussing September production details and submitting their revised compensation plans that include the August overproduction as per the submitted plans to the OPEC Secretariat.

The JMMC emphasized the critical importance of achieving full conformity and compensation. It will continue to monitor adherence to the production adjustments agreed upon at the 37th OPEC and non-OPEC Ministerial Meeting (ONOMM) held on 2 June 2024. The Committee will also continue to monitor the additional voluntary production adjustments announced by some participating OPEC and non-OPEC countries as agreed upon in the 52nd JMMC held on 1 February 2024.

Furthermore, the Committee will continuously assess market conditions.

The JMMC retains the authority to convene additional meetings or to request an OPEC and non-OPEC Ministerial Meeting, as established during the 37th ONOMM held on the 2 June 2024.

The next meeting of the JMMC (57th) is scheduled for 01 December 2024.”

Overall, oil surged over +11% in Oct’24 (till date), primarily on Gaza and Ukraine war geopolitical tensions and OPEC+ decision about not exiting the voluntary cut agreement in 2024. Oil slid almost -13% in Aug-Sep’24 on hopes & hypes of an imminent Gaza war ceasefire and talks of OPEC+ exit of voluntary cut agreement led by Saudi Arabia and growing supply than demand.

Also, higher oil production by Libya after political settlement over its Central Bank Governor issue undercuts oil. Also the market is now assuming that till at least Nov’24 US Presidential Election, Israel may not launch any serious retaliatory attack against Iran’s oil or nuclear facility. And the US is also playing an active role to reduce Middle East tensions ahead of the Nov’24 election.

Weekly-Technical trading levels: oil

Technically Oil (78.00) now has to sustain over 79.00-80.00 for any further rally to 82.00/85.00-88.00/90.00 and 91.00-95.00; otherwise sustaining below 78.50, oil may again fall to 76.00/74.00-73.00/72.00 and 71.00/70.00-69.00/67.00 and further fall to 66.00/65.00*-62.00/60.00-57.00/55.00 in the coming days.