Crude prices seek stability ahead of key support and US elections

Key points

• Crude oil futures trade close to unchanged on the month following an eventful period that saw brief moves below USD 70 and above USD 80.
• For now, the geopolitical risk premium which has ebbed and flowed all year has almost evaporated 
• Downside risks remain limited ahead of a US election that may trigger fresh US sanctions on Iran and Venezuela
• Hedge funds have adopted a "sell-into-rallies" strategy, and, combined with weak positioning, a change in the technical or fundamental outlook could trigger an upside reaction

Crude oil futures trade close to unchanged on the month following an eventful period that saw a brief slump below USD 70 being followed by an equally brief attempt to break above USD 80. This during a month that started and ended with a focus on sluggish demand and the risk of increased OPEC+ production, and in between topped up with temporary geopolitical risks and China stimulus spikes.

The geopolitical risk premium which has ebbed and flowed all year almost evaporated following Israel’s weekend strike on Iran, largely due to the strikes avoiding critical energy infrastructure. A move which eased concerns of an extended tit-for-tat conflict helped send crude prices to their biggest one day slump since 2022 while lowering the risk of an already low probability of a supply disruption from the Middle East. However, the risk of another flare-up has not gone away after Iran said it would respond to Israel’s strike in an appropriate fashion, without being more specific.