Oil prices continued their upward trajectory for the third consecutive day, driven by escalating geopolitical tensions and potential trade conflicts. The surge in prices reflects growing market concerns over global stability and supply chain disruptions.

Market Performance

West Texas Intermediate (WTI) crude, the U.S. oil benchmark, approached the $63.00 per barrel mark, while Brent crude, the global oil benchmark, traded above $66.00 per barrel. This sustained price increase highlights the sensitivity of oil markets to international developments and policy shifts.

Geopolitical Factors

Several key geopolitical factors are contributing to the current oil price rally:

1. U.S. Trade Tensions: President Trump has threatened to impose tariffs on the European Union, India, and China. These threats are being used as pressure tactics in negotiations related to Russia and Ukraine, potentially impacting global trade dynamics and oil demand.

2. Middle East Unrest: Israeli strikes targeting Hamas leaders in Doha have heightened tensions in the Middle East. This escalation in a historically volatile region has raised concerns about potential disruptions to oil supply chains.

Market Implications

The combination of these geopolitical factors has created a perfect storm for oil prices:

• Supply Concerns: Tensions in the Middle East, a critical oil-producing region, often lead to fears of supply disruptions, pushing prices higher.
• Demand Uncertainty: The threat of new tariffs and potential trade conflicts can impact global economic growth projections, influencing oil demand forecasts.
• Risk Premium: Geopolitical uncertainties typically add a risk premium to oil prices as traders factor in potential supply disruptions or conflicts.

As these situations continue to develop, market participants will be closely monitoring diplomatic efforts and policy decisions that could further impact oil prices. The sustained price increase over three days suggests that the market is pricing in ongoing geopolitical risks, reflecting the complex interplay between international relations and energy markets.

Investors and analysts will be watching for any signs of de-escalation or further tensions that could sway oil prices in the coming days and weeks. The volatility in the oil market serves as a reminder of the global nature of energy trade and its susceptibility to geopolitical events.

In a significant shift in global oil consumption patterns, Trafigura Group, a leading commodity trading firm, forecasts that India's oil demand growth will surpass China's underlying gains this year, excluding China's strategic stockpiling activities. This prediction comes as Saudi Aramco has lowered prices for most oil grades sold to Asia, raising concerns about weakening demand.

India's Rising Oil Consumption

Saad Rahim, Chief Economist at Trafigura, attributes India's robust demand growth to two key factors:

1. Rapid urbanization
2. Rising incomes

These drivers are propelling India's oil consumption to new heights, potentially reshaping the global oil demand landscape.

China's Changing Oil Demand Dynamics

While India's oil demand is on an upward trajectory, China's situation presents a more complex picture:

• Slowing crude consumption growth outside the petrochemicals sector
• Overall consumption bolstered by strategic stockpile builds
• Estimated stockpile accumulation of approximately 200,000 barrels per day in recent months

China's strategic petroleum reserve (SPR) accumulation has played a crucial role in maintaining global crude prices as OPEC+ restored production capacity.

Saudi Aramco's Price Cuts and Market Implications

Saudi Aramco's decision to lower prices for most oil grades sold to Asia has raised concerns about weakening demand. Despite these price cuts, oil prices have remained steady. Traders view the significant reduction in Arab Light crude pricing as a bearish signal for the market.

Long-term Sustainability Concerns

Frederic Lasserre from Gunvor Group, another major commodity trader, raises questions about the long-term sustainability of China's SPR accumulation:

• Unlikely to be sustainable in the long run
• May not be able to absorb future market surplus

Global Oil Demand Outlook

Looking ahead, analysts paint a cautious picture for global oil demand:

• Limited clear drivers for global demand growth despite increasing supply
• Next year's demand growth projected at just under one million barrels per day
• Concerns about market absorption capacity

This forecast suggests a potential imbalance in the oil market, with supply potentially outpacing demand growth in the coming year. The oil sector faces potential oversupply challenges expected to continue through late 2025 and 2026.

Implications for the Global Oil Market

The shifting dynamics between India and China, two of the world's largest oil consumers, coupled with Saudi Aramco's price cuts, could have significant implications for global oil markets:

1. Increased focus on India as a key driver of oil demand growth
2. Potential pressure on oil prices if China's strategic stockpiling slows
3. Need for oil producers to closely monitor demand trends in emerging markets
4. Possible oversupply issues in the medium term

As the global oil landscape continues to evolve, market participants will need to closely watch these trends and their potential impact on supply-demand balances and pricing.