Oil rises after Israel-Hezbollah ceasefire violated - OPEC+ postpones meeting
Oil prices rose nearly 1% on Thursday morning, boosted by escalating tensions in the Middle East after Israel reported violations of a ceasefire agreement with Hezbollah. Israeli army spokesman Avichay Adraee wrote on social media X that "a number of suspects were observed arriving, some of them in vehicles, in some areas in southern Lebanon, which constitutes a violation of the agreement."
Brent crude rose to $72.90 a barrel in midday European trading, recovering from a two-day slide. The euro fell 0.2%, and European stocks pared earlier gains on the news. The ceasefire, which began on Wednesday, was meant to end the 14-month conflict along the Israel-Lebanon border, but renewed hostilities have fueled supply fears.
The breach raises concerns about fragile stability along the Israel-Lebanon border, where residents have been asked not to return due to security concerns. The OPEC+ alliance has rescheduled its crucial meeting on oil production policy to December 5, 2024, pushing it from the originally scheduled December 1, 2024, as some ministers will attend the 45th Gulf Summit in Kuwait.
Analysts expect the meeting to focus on the alliance's production cuts and their possible extension until 2024. While OPEC+ had planned to gradually increase production if prices stabilized, persistently low prices have led to the postponement. Some suggest that the cuts could be prolonged due to the slow market reaction.
Goldman Sachs analysts, led by Daan Struyven, predict a measured approach from OPEC+. Analysts now speculate that output caps may become a long-term strategy. The investment bank expects output to rise only gradually from April 2025, up from January 2025 previously, with Brent crude averaging $76 a barrel through 2025 and peaking at $78 in June of that year.
The latest data from the US Energy Information Administration shows that crude oil and gasoline inventories are hovering at five-year lows, reinforcing near-term supply concerns. Goldman Sachs expects Brent crude to rise to the mid-$80s in the first half of 2025 if Iran's supply falls by 1 million barrels a day due to tighter sanctions.
Despite global efforts towards decarbonisation, the bank predicts that oil demand will grow for at least another decade, driven by emerging markets and the slow pace of decarbonisation in air travel and petrochemical production. While geopolitical tensions and OPEC+ strategies shape the short-term outlook, broader structural trends including energy transition challenges are expected to support demand in the longer term.
Goldman Sachs predicts oil demand will continue to grow for another decade, driven by rising energy needs in emerging markets as their economies expand, along with the ongoing challenges of decarbonizing air travel and petrochemical production. For now, investors remain alert to developments in the Middle East and OPEC+ policy decisions, which could significantly affect market dynamics heading into 2025.
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