Oil Prices Eye Fourth Straight Day Of Gains As Geopolitical Risks Overshadow OPEC's Cooler Demand Forecast

Oil is on course to secure its fourth consecutive session of gains.

What Happened: Oil prices climbed by more than 1% at the start of the week. West Texas Intermediate (WTI) light crude futures, tracked by the United States Oil Fund USO, surpassed $77 per barrel by 8:00 a.m. EST.

This rise comes despite the Organization of the Petroleum Exporting Countries (OPEC) cutting its global oil demand growth forecast. OPEC has revised its global oil demand growth estimate for 2024 to 1.78 million barrels per day (mb/d). That’s down from the previous projection of 1.85 mb/d. The oil cartel expects global oil demand in 2024 to average 104.32 mb/d.

For 2025, oil demand growth globally has also been lowered to 2.11 mb/d. That’s a reduction from the prior estimate of 2.25 mb/d.

“This slight revision reflects actual data received for the first quarter of 2024 and, in some cases, the second quarter, as well as reduced expectations for China’s oil demand growth in 2024,” OPEC stated in its latest monthly report.

Why It Matters: The recent surge in oil prices is largely attributed to escalating supply risks, fueled by increasing geopolitical tensions in the Middle East, including a surprise incursion by Ukrainian forces into Russia.

On Monday, Russia began evacuating civilians from parts of a second region near Ukraine following a spike in military activity by Kyiv, as reported by Reuters. This comes just days after Ukraine’s most significant incursion into Russian territory since the war began in 2022. Last Tuesday, Ukrainian forces breached the Russian border and advanced through parts of the Kursk region, a move that could be aimed at gaining leverage in potential ceasefire talks post-U.S. elections in November.

Meanwhile, Ukraine and Russia exchanged accusations over an incident at the Zaporizhzhia nuclear power plant on Sunday. The International Atomic Energy Agency (IAEA) reported witnessing thick smoke from the northwestern area of the plant after hearing multiple explosions throughout the evening.

The IAEA confirmed that an alleged drone attack targeted one of the plant’s cooling towers but assured there was no impact on nuclear safety. “These reckless attacks endanger nuclear safety at the plant and increase the risk of a nuclear accident. They must stop now,” said IAEA director general Rafael Mariano Grossi.

Additionally, tensions in the Middle East continue to rise.

On Saturday, an Israeli airstrike on a Gaza City school compound, which had been converted into a shelter. The Gaza Civil Emergency Service reported that approximately 100 people were killed in the strike, while Israel claimed that around 20 militants were operating within the compound.

The White House expressed deep concern over the incident, joining several Arab states, Turkey, Britain, and the European Union’s foreign policy chief in condemning the attack.

In response to changing demand dynamics, Saudi Arabia is expected to reduce its crude oil exports to China next month. The Kingdom, the world’s largest crude oil exporter, is set to ship 43 million barrels to China in September. That’s down from an estimated 46 million barrels in August, according to trade sources quoted by Reuters.

Stock Market Reactions

The Energy Select Sector SPDR Fund XLE was up 0.5% by 8:00 a.m. in New York.
Top premarket performers: Halliburton Company HAL and Baker Hughes Company BKR, both rising 1.4%.
The SPDR S&P Oil & Gas Exploration and Production ETF XOP, which tracks companies in the upstream segment, also saw a 0.6% increase.
Vitesse Energy Inc. VTS is up more than 3%.