A light economic calendar means traders are likely to feed off the ongoing narratives around AI, Iran, tariffs, and earnings. From the earnings perspective, today brings data from Home Depot and Workday in particular. In a week that undoubtedly has the software and tech space in the limelight, it can be easy to miss out on the fact that we also see a handful of interesting high-street names such as Home Depot, TJX, and Lowe’s report between today and tomorrow.

This provides a key insight into the health of the consumer at a time of employment and AI uncertainty. Coming off the back of yet another shift in the tariff rates, we will be watching for any commentary over whether the new 15% blanket rate helps or hinders the margins at Home Depot. On the software-front, any hope that Workday will enjoy a sharp rebound off the back of strong earnings should perhaps be tempered. However, it does provide a timely opportunity for the CEO to lay out exactly why this current selloff is ill-founded. One thing is for sure, investors will be looking for signs that the business plans to leverage the new technology rather than wait for it to consume them.

Looking ahead, much of this week will be dominated by the question of whether we will see the US launch an attack on Iran, with their military in positioned to a great expense. The notion that this is simply a case of playing the strongest hand possible to force Iran into a highly one-sided deal could yet play out as the truth. After-all, we have seen Trump use that trick over and over when it comes to trade.

However, in an environment where Trump wants to control particular spheres of influence, the fact that Iran has had such a profound anti-American and volatile influence on much of the Middle East would undoubtedly provide an incentive to seek real change. Would the US move those military assets without speaking to Iran at the same time to avoid a pre-emptive attack? Are the negotiations simply a smokescreen aimed at affording them enough time to plan and position accordingly? One thing is for sure. The commodity space in particular is positioned around the likeliness of an attack, with the likes of gold and oil expected to see significant gains should Trump opt to launch military operations in the second-biggest country in the Middle East.

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Crude oil prices retreated on Wednesday as the market continued to lean heavily toward a bearish outlook, underpinned by growing evidence of oversupply and a steady rise in US inventories. While WTI crude remained confined within the relatively narrow range seen in recent weeks, traders noted that the underlying tone has shifted decisively toward caution, with any upward moves increasingly viewed as opportunities to sell into strength.

Oversupply Concerns Intensify

Forecasts of a persistent global surplus remain at the centre of current market sentiment. The International Energy Agency’s latest assessment projects that oil markets could face a surplus of up to 4 million barrels per day in 2026, reinforcing expectations that supply might significantly outstrip demand over the medium term. This narrative has weighed heavily on bullish momentum, with investors questioning whether any sustained price recovery is possible without a material shift in fundamentals.

Industry analysts say the market is entering a period where structural oversupply—not geopolitical conflict—is exerting the dominant influence on prices. While geopolitical shocks have the potential to generate short-lived rallies, these are increasingly being viewed as tactical selling opportunities rather than the beginning of new upward trends. The tone suggests a market searching for equilibrium amid shifting consumption patterns, record US production and continued output from non-OPEC producers.

US Inventory Builds Deepen Pressure

Sentiment was further undermined by the latest data from the American Petroleum Institute, which reported a 4.4 million-barrel increase in US crude inventories—the third weekly build in the past month. This follows last week’s official EIA report confirming a larger-than-expected 6.4 million-barrel build, signalling that domestic stockpiles continue to expand despite seasonal demand.

The consistency of these increases has fuelled speculation that US production remains exceptionally strong, and that refiners are responding to softening consumption trends. The market now turns its attention to the EIA’s official figures due today, with traders warning that confirmation of another sizeable build could trigger renewed downside pressure for both WTI and Brent.

Sanctions Deadline Limits the Downside — But Only Slightly

The only notable bullish element on the horizon is the 21 November sanctions deadline on Russian oil giants Rosneft and Lukoil, which could temporarily constrain certain supply channels into global markets. However, analysts caution that while these measures may create short-term price floors, they are unlikely to generate any sustained rebound without broader supportive demand data.

In addition, alternative supply from other producers—including record flows from the US, Brazil and Guyana—continues to blunt the market impact of Russian disruptions, limiting the upside.

Market Outlook: Bearish Until Fundamentals Shift

Overall, crude markets remain locked in a pattern defined by oversupply and tepid demand growth. Without a clear catalyst to reverse the current trajectory, traders expect prices to remain under pressure into December, with volatility driven primarily by inventory data and shifting expectations around the global economic outlook.

For now, the combination of rising US inventories, a looming structural surplus and limited geopolitical support points to a market still firmly anchored in bearish territory.

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Oil prices fell more than 5% today for both vertical benchmarks, erasing the remaining gains they made this month.

Today’s drop in oil prices reflects a reassessment of geopolitical risks in the Middle East, following Israel’s recent attack, which avoided targeting oil or nuclear facilities, easing concerns over the safety of crude supplies.

Previous talk about the possibility of targeting Iran’s critical facilities, and the potential disruption to crude supplies from Iran or from regional countries as a result of an escalation in the war, had sparked fears in the markets and sent prices higher for some time.

But that was about this round of escalation. Now, we see talk about the features of the next round of escalation, which will take place after the end of the US presidential elections – which are believed to have influenced the decision about the nature of the attack to prevent oil prices from rising simultaneously.

The details of the latest Israeli attack may reveal the features of this next round of conflict. Several air defense systems surrounding vital oil facilities in Iran were targeted, according to The New York Times.

That said, I believe, may be an indication that it is a prelude to clearing the airspace for targeting those oil facilities in the next attack.

While Iran has threatened to respond to the last attack, this response may encourage Israel to carry out another counter-response that may actually target those facilities. The next Iranian attacks may also be unprecedented and may include launching up to a thousand ballistic missiles and escalating attacks on its allies in the region and targeting oil supplies and navigation in the Strait of Hormuz, according to what Iranian officials told The New York Times last week. While the last Israeli attack may also encourage Iran more and more to possess nuclear weapons, according to The Times.

In addition, the return of Donald Trump to the White House may encourage Israel to target Iranian nuclear or oil facilities. While we do not see any significant advantage for either candidate in the presidential race over the other, oil market may remain in a state of uncertainty, leaving them vulnerable to high volatility.

All of this comes with the resumption of ceasefire talks in Gaza with the meeting of officials in Doha yesterday, according to CNN. While I do not believe that this round of negotiations will end with an actual breakthrough, this is in light of each party’s insistence on demands that the other party completely rejects, in addition to previous accusations and reports about Israeli Prime Minister Benjamin Netanyahu’s lack of seriousness in negotiating.

Away from the Middle East, and on the economic front, this week hosts a series of key economic data, most notably the labor market and GDP figures in the US, in addition to the manufacturing activity PMI reports in the US and China.

All of this comes before the Federal Reserve meeting next week, which is expected to continue cutting interest rates, but at a slower pace than before, at only 25 basis points.

Also, next week, we will witness a meeting that extends throughout the working days of the Standing Committee of the National People’s Congress of China, which is expected to come out with more anticipated decisions regarding the support packages provided to the economy, which markets are counting on to revive oil prices.

Technical Outlook for West Texas Intermediate Crude Oil (USOIL)

Technically, and on the daily time frame, US crude breaks below the 68.944 level and opens on a bearish gap below. This would keep the eyes of the sellers on the 66.585-65.724 levels. On the other hand, regaining the 68.944 level again could redirect the eyes to the 71.767-72.736 levels.

[Chart by MT5, XS Fintech Ltd]

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Crude oil across both major benchmarks is recording quiet trading today with slight losses of nearly 0.18% and 0.15% for both West Texas Intermediate (WIT) and Brent crude respectively.

Cautious trading in the oil market comes with a state of anticipation regarding the progress of military action developments in the Middle East at the beginning of the month of Ramadan, especially with the dwindling hope of reaching an imminent ceasefire.

After losing the opportunity to reach a ceasefire agreement in Gaza before the start of the holy month, the world has become more afraid of the conflict entering a new, bloodier phase.

Usually, the month of Ramadan may witness an increase in violence, especially near the holy sites in Jerusalem. Even before entering this month, there is a fear of carrying out a large ground operation in Rafah, which may not be far away now with the collapse of the negotiations. Now, in addition to fears about the bloody events that may occur in Rafah, the West Bank may become more involved in this conflict in conjunction with the holy days for Muslims.

The expected escalation in Rafah or the West Bank during Ramadan would create more pressure from regional or international actors to stop the violence. At the same time, it will prompt more retaliatory actions that may hit economic interests, especially in the Red Sea, and this is what the markets may actually fear.

The US Democratic administration may seek to contain this escalation, which coincides with the election season, in which the Republicans seem to have more luck so far. Where US President Joe Biden said that causing heavy casualties among civilians in Rafah is a red line.

Of course, despite the premium oil prices are getting from the conflict in the Middle East, this does not appear to be enough to face the pressure of the continued weak demand from China.

Despite this, the largest oil producing company in the world, Aramco, has increased its annual dividends by 30% to approach $100 billion for the year 2023, according to what the company announced yesterday.

While this step to significantly raise dividends reflects the company’s optimism about the future growth of global demand for oil, and this is what the CEO also spoke about with his expectations of an increase in demand during the current and next year.

This week, we await a set of important economic data. From the United States, this week we will see the February reading of the Consumer Price Index (CPI) with expectations for annual inflation to hold the growth at 3.1% and Producer Price Inflation (PPI) to hold at a growth at 0.3% on a monthly basis.

While weaker than expected inflation readings may enhance the possibility of the Federal Reserve cutting interest rates in June, especially with the slowdown in wage growth and unemployment rising more than expected in February, according to the data we saw on Friday, pushing Treasury bond yields to slide towards the lowest levels in more than a month.

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Crude oil has been one of the main factors contributing to the problem of uncontrollable inflation worldwide. When Russia attacked Ukraine, uncertainty about supplies drove prices to almost $130 per barrel. However, when the market saw that there were no global oil supply issues, the price dropped significantly from June of the previous year to June of the current year. But record global demand and a strong global production cut by OPEC+ have brought back the ghost of $100 per barrel. This may indicate that the fight against inflation is far from over.

Huge Deficit and Further Production Cuts 

OPEC+ had already reduced production, but with a significant price drop, they decided to intervene. In April, the entire expanded cartel decided to reduce its production target by just over 1 million barrels per day (brk/day). It’s worth noting that at that time, many cartel countries struggled to ramp up production after the initial cuts during the pandemic. The market was skeptical about the effect of this action, so only after further cuts in June did prices begin to bounce back. But that’s not all! During the summer, Saudi Arabia announced an additional voluntary cut of 1 million brk/day, and Russia cut exports by 0.3 million brk/day. Both of these actions have been extended to the end of this year. The market had earlier expected a deficit of 2 million brk/day by year’s end, but it’s now clear that this deficit will be even greater!

Such a massive deficit was last seen in 2007-2008 when prices soared to nearly $150 per barrel. Of course, back then, supply couldn’t keep up with growing demand, while now, the supply is artificially limited. Still, we currently see a record demand above 100 million brk/day, so with an oil shortage, prices continue to rise, and nobody expects major declines.

Biden has no Emergency Solution 

Last year and early this year, the United States vigorously fought to lower market prices. It must be admitted that for some time, this worked very well. The US tapped into its vast oil reserves, established following the oil crises 40 years ago. At one point, US government agencies were selling 1 million barrels a day. While this might not seem like much, the well-balanced market felt it quite distinctly. It should be stressed that these reserves were created for a “rainy day.” Even though the US is currently the world’s largest oil producer, it’s not self-sufficient. Releasing these reserves was politically motivated – Biden wanted low prices for the midterm elections. Reserves have been drained to levels not seen since the 1980s, and American producers, even with fairly high prices, are reluctant to invest heavily in production expansion due to the restrictive policies of the current administration. Thus, a scenario of commercial inventories dropping to their lowest levels since 2015 seems almost certain.

Huge Price Increases 

For a long time this year, oil was traded at lower levels than in the corresponding period a year earlier, leading to rapid inflation containment. That’s in the past now. Current prices are even 15% higher than in September of the previous year and over 40% higher than the local lows of March or May this year. Looking at futures contracts, we see a massive short-term demand surge for the commodity with limited supply. Future contracts are priced noticeably lower, indicating “backwardation.” Of course, if oil production doesn’t increase significantly next year, prices could remain high. On the other hand, the OPEC+ cartel knows it can’t lead to demand destruction, something that happened in 2008 or in June of the previous year when prices quickly dropped from around $130 to $100 per barrel. That’s why we probably shouldn’t expect further excessive price increases and their maintenance above $100. This level will likely be broken, although stabilization and potential OPEC+ policy adjustments are expected afterward. Of course, if a recession were to occur, driven by concerns about excessively high oil prices, prices could drop quite drastically. However, without this, OPEC+’s ongoing supply restrictions will likely result in high prices, at least until the end of this year.

Why only until the end of this year? Saudi Aramco plans a second stock issuance worth up to $50 billion. It’s clear that they’ll get the best price with high oil levels. Additionally, a potential slowdown in demand from China next year and slowing growth related to maintaining high-interest rates are expected.

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Oil prices remained highly volatile as traders’ expectations quickly shifted between economic outlook and monetary policy expectations with supply and demand forecasts coming under pressure. While the market has been able to rebound from this year’s low to a certain extent it continued to trend in a range for the last couple of weeks. By Ahmed Negm, Head of Market Research MENA at XS.com.

The Saudi decision to cut production levels has affected the direction of the market and could support higher prices while OPEC’s policy could remain restrictive overall, however, its impact was moderated by economic doubts as well as Russian oil outflows. However, the organization’s policy could continue to squeeze supply levels at a time when demand could continue to grow, in particular during the summer months.

While Japanese economic growth was stronger than forecast and could lift demand, European growth was lower than expected and Chinese data continued to miss estimates and could affect overall consumption outlook. Rising interest rates have been weighing on European economies.

In this regard, traders’ attention could be directed toward the Federal Reserve and the European Central Bank as they could monitor their next meetings for any clues over new developments in their respective monetary policies. Both central banks are poised to announce their decision regarding interest rates next week. While the Federal Reserve is expected to pause its interest rate hikes, providing some relief to the US economy and a potential boost in US oil demand, the ECB could tighten its policy further and dampen demand and consumption in the region.

At the same time, traders could monitor new Chinese data and any efforts from the Chinese government to boost the economy. Additionally, demand for refined products in China and the US could also help support oil prices during the next few weeks during summer.

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