Oil prices edged higher this week as potential U.S. sanctions targeting Iran and Russia bolstered market sentiment, offsetting worries about a looming global oversupply in 2024.
Brent crude remained steady above $73 per barrel, reflecting a 3% weekly increase, while West Texas Intermediate (WTI) hovered near $70. This marks the first weekly gain for oil in three weeks, though prices have largely stayed within a narrow trading band since mid-October.
The possibility of stricter U.S. measures fueled bullish sentiment. President-elect Donald Trump’s proposed national security adviser has vowed to reinstate a “maximum pressure” campaign on Iran, signaling a potential tightening of restrictions on Tehran’s oil exports. Simultaneously, the outgoing Biden administration is reportedly mulling new sanctions targeting Russia’s energy sector before handing over power next month.
The news spurred activity in options markets, where traders skewed toward call options, betting on higher oil prices. Implied volatility for both Brent and WTI also saw a significant uptick.
Canada is reportedly exploring export taxes on key commodities like uranium and oil in response to Trump’s threat of sweeping tariffs on U.S. imports. While such measures would be a last resort, they underscore rising trade tensions that could impact the energy sector.
Despite the sanctions-driven optimism, oil markets face a challenging outlook. The International Energy Agency (IEA) warned Thursday that the global oil market could be inundated with surplus supply in 2024. This comes even after OPEC+ decided to delay the reactivation of idle production capacity, attempting to stabilize the market amid demand uncertainties.
Although oil is set to close the week on a positive note, traders remain cautious. The delicate balance between geopolitical developments and concerns about oversupply continues to shape market sentiment. With prices locked in a tight range for nearly two months, sustained upward momentum may depend on clearer signals from global policy shifts and demand recovery.
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