Oil Market Update – Shifting to a Lower Range

Brent closed back above $80/bbl on 7th Oct and ha s traded in a tight $77-80/bbl range since the market began seriously considering the prospect of an Israeli strike on Iranian oil infrastructure. However, the recent uptick in geopolitical risk and associated volatility has obscured a market that had been traveling in a decisively bearish direction . As such, whilst the latest geopolitical dynamics (as well as some tightness in prompt fundamentals) are providing near-term support, any easing of tension could see market focus squarely back on bearish balance and the assumption that Saudi Arabia’s willingness to unilaterally support prices has waned (following recent reports in the financial press). Whilst we acknowledge significant uncertainty as the market awaits Israel’s response to Iran’s 1 st Oct strike , we maintain a base-case of de-escalation and subsequently limited barrel loss. Within this context , OPEC’s decision framework for upcoming policy decisions is critical. We take the view that ultimately, there is no smoke without fire when it comes to recent OPEC reporting, however this signals more the shift to a lower targeted price level before market management policies are triggered, rather than an outright abandonment of the policies themselves. As such, we see OPEC’s planned unwind proceeding as planned in December, signaling comfort with Brent in the $70s rather than the prior range in the $80s. That said, we still see Saudi stepping up if balances and prices deteriorate markedly, with ultra-bearish Cal-25 forecasts ultimately only able to be realised if the group fully abandons market management - we don’t think we’re there yet. We subsequently see Brent averaging $73/bbl in 2025.