Key points:

  • Oil prices remained nearly unchanged on Tuesday.
  • Market participants expect an increase in oil production by OPEC+ countries by the end of the year.
  • Israel’s invasion of Lebanon and the elimination of Hezbollah’s leader raise geopolitical risks, but so far, they have not significantly impacted prices.

On Tuesday, oil prices remained nearly unchanged. This is attributed to positive expectations regarding increased oil supply and the weakening of global demand dynamics, which outweighed the negative factors associated with rising geopolitical tensions in the Middle East. Concerns about possible production cuts in the region haven’t led to significant fluctuations in oil prices.

Oil demand remains weak

Oil futures showed positive dynamics at the start of the trading session. December Brent contracts rose by 13 cents, reaching $71.83 per barrel. Meanwhile, November WTI futures increased by 14 cents, settling at $68.31 per barrel.

Despite short-term growth, September marked the third consecutive month of declining oil prices. Brent futures ended the month with a 9% drop, the largest monthly decline since November 2022. For the third quarter, Brent prices fell by 17%, showing the worst quarterly result in a year. WTI followed a similar trend, with a 7% decline in September and a 16% drop for the quarter.

According to IG market strategist Yeap Jun Rong, the observed volatility in the oil market is tied to uncertainty about future prices. Investors are cautiously assessing the prospects for further price increases due to the anticipated rise in production by OPEC+ countries by the end of the year, as well as ongoing concerns about weak demand from China, as indicated by recent data from China’s business activity index.

Market participants analyze Israel’s invasion of Lebanon

Early Tuesday morning, it appeared that Israel had launched a ground invasion of Lebanon, with Israeli forces stating that their troops were conducting “limited” operations against Hezbollah targets in the border zone. Despite this, concerns about supply disruptions remain relatively moderate, as market participants continue to assess the likelihood of a broader regional conflict.

The escalation followed Israel’s elimination of Hezbollah leader Hassan Nasrallah on Friday, intensifying the conflict in the Middle East between Israel and Iranian-backed militants, raising the risk of U.S. and Iranian involvement.

Meanwhile, in the U.S., preliminary data from a Reuters poll suggests that crude oil and fuel inventories likely decreased by about 2.1 million barrels in the week leading up to September 27.