This week, the price of WTI crude oil for December experienced one of its worst declines, dropping from an initial price of $102.39 to $86.65, equivalent to an 11.10% decrease. The price peaked at $102.75 during the week before sharply declining. By Friday morning, crude oil contracts were trading around $91.58, still reflecting a significant drop from the beginning of the week.
Reasons for the Decline in Oil Prices
This price drop was not due to a sudden fall in demand or an unexpected increase in inventories, but rather traders took steps to reduce part of the war premium that had driven prices to October highs. The results of the U.S. midterm elections raised hopes for a quicker end to the conflict with Iran. With Democrats regaining control of Congress, expectations for a political deadlock in Washington increased, strengthening the possibility of a reduction in hostilities.
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Political Impacts on the Oil Market
The rise in gasoline prices had become a significant political issue. Vice President JD Vance referred to the battle against Republican setbacks, while President Donald Trump stated that there were no plans for new attacks on Iran. The market interpreted these developments as a sign of reduced likelihood of renewed hostilities, encouraging a significant profit-taking.
In recent months, WTI prices had been supported by the threat of supply disruptions through the Strait of Hormuz, but traders were no longer willing to hold onto high risks stemming from the conflict.
Supply Situation in the Gulf Region
The physical supply situation was also not favorable for high prices. Gulf crude oil exports, excluding Iran, have roughly returned to pre-war levels. Producers have managed to overcome existing risks by using alternative pipelines and transferring oil from ship to ship. These changes indicate that the market has operated in a more adaptable manner than many traders had expected.
Regional exports of nearly 18 million barrels per day indicate that the supply system has adjusted more effectively than anticipated. However, some shipments still face military and insurance risks.
Future Oil Market Forecasts
A recent EIA report indicated a decrease in U.S. commercial crude oil inventories by 900,000 barrels to 409.8 million barrels, marking the fifth consecutive weekly decline. U.S. crude oil production reached a record near 14 million barrels per day, with refinery capacity around 94.5%. Despite this positive information, the market remains influenced by political changes.
If the market moves towards reducing political premiums, traders are likely to pay less attention to weekly inventory numbers and focus more on whether the source of supply threats is diminishing. Prices are expected to be determined in the coming weeks based on traders' reactions to key levels such as $94.70.
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