Oil prices balance between Iran concerns and oversupply
Oil prices saw a limited decline on Wednesday after yesterday's gains, with markets remaining focused on geopolitical developments between the US and Iran, which continue to cause caution and uncertainty among traders.
Brent crude is currently trading near $67.00 per barrel, while West Texas Intermediate (WTI) is hovering around $63.00 per barrel, reflecting a fragile balance between geopolitical risks and supply and demand fundamentals.
Tensions keep risk premium in place
Tensions in the region continued after the US announced it had shot down an Iranian drone targeting the US aircraft carrier USS Abraham Lincoln in the Arabian Sea.
There were also reports that a US-flagged ship managed to escape an attempt by armed Iranian gunboats to force it to stop. Despite these developments, negotiations between Washington and Tehran are still expected this week, making markets cautious in pricing the next direction of prices.
Markets are pricing in a risk premium and are poised to rise if tensions
escalate Estimates suggest that the uncertainty surrounding the talks will keep the geopolitical risk premium embedded in oil prices.
In the event of any new escalation, these risks could push Brent crude back above $70 per barrel.
OPEC supplies may limit gains in the long term
On the other hand, analysts expect continued additional supplies from OPEC to keep prices relatively under control in the medium to long term, limiting any strong and sustained rally.
Oil price forecasts for the coming period
UOB has revised its Brent crude price forecasts as follows:
- $75 per barrel in the first quarter
- $70 per barrel in the second quarter
- $65 per barrel in the second half of the year
These forecasts reflect a balanced view between geopolitical risks and the potential for increased supply.
Watch for US inventory data and the impact of the winter storm
Traders are awaiting the release of weekly inventory data from the US Energy Information Administration (EIA), which will give a clearer picture of the impact of the severe winter storm that recently hit parts of the United States on domestic production and demand.
Ultimately, oil prices are moving within a narrow range between supply pressures and geopolitical risk support.
While any new escalation could lead to short-term price spikes, abundant supplies from OPEC may limit strong gains in the long term. On the technical side, we still expect some upside in the coming period to target the upper levels of the rising price channel here.
Oil prices rebounded as we predicted, near the lower boundary levels of the aforementioned channel.
