Oil futures experienced a drop on Monday, continuing the decline from last week. Traders remained skeptical about compliance following the announcement of voluntary production cuts by OPEC+.
Price Action
Market Drivers
Oil Market Faces Volatility and Uncertainty
The oil market has entered a challenging phase, with prices becoming increasingly volatile and potentially directionless. According to experts, this volatility is likely to continue until clear data points regarding voluntary output cuts are revealed. However, these cuts won’t be implemented until the following month, making for a “long and volatile” two months ahead. This extended period of uncertainty poses significant challenges for a market already grappling with a lack of risk deployment and liquidity.
The situation in the Middle East further complicates matters for oil traders. As tensions escalate between Israel and Hamas, maritime attacks have seen a recent uptick. The United States military reported that Yemen’s Houthi rebels launched ballistic missiles at three commercial ships in the Red Sea. In response, a U.S. warship downed three drones in self-defense during the ongoing assault. The Houthis, allegedly backed by Iran, claimed responsibility for two of the attacks.
Following the attack on southern Israel by Hamas on October 7th, oil futures experienced a temporary spike but failed to challenge their late September highs. Subsequently, as fears of a wider conflict that could disrupt crude flows subsided, crude prices fell back. Presently, they are trading well below levels observed just before the commencement of the conflict.
-— Associated Press contributed.
