On Thursday, during the Asian and European sessions, oil prices continued to decline, with market sentiment remaining under pressure. Despite the sharp drop in oil prices at the end of Wednesday's trading session, there was no rebound, highlighting the current market's deep entanglement between weak demand signals and persistent supply concerns. Overall, the market showed a weak and volatile trend, before a rapid plunge to a daily low before the European market opened, releasing panic.

Subsequently, oil prices were stimulated by news of Israel's airstrikes on southern Lebanon, resulting in a rapid rebound from panic lows and a V-shaped reversal. Prices surged from -0.3% to 1.7%, and are currently trading around $60.08, up 0.79%. The following is relevant information regarding recent factors suppressing oil prices.

Core Driver: The Two-Way Pull Between Demand and Supply

On the demand side, investors remain cautious about the global economic growth outlook, especially in Asia, where slowing industrial activity and weak energy consumption continue to weigh on market expectations.

At the same time, the strong performance of the US dollar index further exacerbated the downward pressure on oil prices, making dollar-denominated crude oil less attractive to holders of non-US currencies.

Against this backdrop, the Organization of the Petroleum Exporting Countries and its partners (OPEC+) are stabilizing the market through supply controls – planning a small production increase in December followed by a suspension of further production increases in early 2026.

However, recent oil price trends suggest that if demand fails to recover substantially, the OPEC+ production cuts may not provide effective support for oil prices in the short term.

Inventory signals: US inventories unexpectedly increased, fueling bearish sentiment.

On the inventory front, data released by the American Petroleum Institute (API) showed an unexpected increase in U.S. crude oil inventories, further reinforcing bearish sentiment in the market.

The immediate trigger for the latest round of market sell-off was the weekly report from the U.S. Energy Information Administration (EIA) released Wednesday evening. The data showed that U.S. commercial crude oil inventories unexpectedly surged by 5.202 million barrels in the week ending October 31, a stark contrast to the market's widely expected "slight increase of 600,000 barrels."

A rise in U.S. crude oil inventories typically indicates weak refinery demand or increased inflows, both of which suppress upward momentum in oil prices.

Furthermore, with the continued expansion of production from non-OPEC oil-producing countries, coupled with the weakening of new crude oil absorption capacity at Asian refineries, a mild oversupply situation is beginning to emerge in the global oil market.

Therefore, in the absence of strong demand catalysts or sudden supply disruptions, traders have not yet shown any willingness to actively push prices up. The market is currently in a wait-and-see mode, awaiting a clear directional signal.

U.S. crude oil production hit a record high, driven by efficiency improvements.

So far this year, US crude oil has fallen by more than 15%, reaching a level that touches the profit threshold for small oil producers, and this decline has not yet factored in the expectation of the largest global supply glut in history next year.

Nevertheless, U.S. domestic crude oil production has not slowed down, but has continued to break historical records, a trend that may lead to further downside risks for oil prices in the coming months.

Angie Gildia, head of KPMG's U.S. energy practice, pointed out that crude oil supply continues to benefit from significant improvements in production efficiency. Despite a decrease in the number of active oil drilling rigs, crude oil production has not declined accordingly.

Technological iterations have enabled companies to achieve higher production output with fewer drilling platforms and resources.

Data from Baker Hughes shows that the number of active oil drilling rigs in the United States has decreased by 65 this year. Weekly data as of October 31 shows that the number of drilling rigs has decreased by another 6 week-on-week, down to 414.

However, data from the U.S. Energy Information Administration (EIA) shows that as of the week of Halloween, U.S. crude oil production rose slightly to a record high of 13.651 million barrels per day, and monthly data released at the end of October also showed that crude oil production in August reached a record high of 13.794 million barrels per day.

Oil producers' resilience: They can still make a profit even with discounted sales.

Some energy analysts believe that the break-even price (the core price that covers production costs) for US oil producers is at a low level of $60 per barrel, and US oil prices have already reached that level.

However, for some leading companies, the break-even price may be only about half of this level. Tim Holland, chief investment officer of Fortune Technology Orion, said that the break-even cost for certain regions and oil wells is as low as $30 per barrel.

KPMG's Gildia stated that most companies have built inherent resilience and are relatively able to withstand short-term price fluctuations. If oil prices remain at current levels, "the economies of scale created by the super giants will enable them to maintain current production levels."

Holland emphasized that for oil producers, the key is not the market price per barrel of crude oil, but the marginal cost of extracting the next barrel of crude oil. This indicator is the core factor driving capital allocation decisions.

Analysts generally believe that for U.S. oil producers to significantly reduce output, an extreme environment of sharp demand contraction and oil prices significantly lower than current levels is required.

For shale oil companies, oil prices would need to remain below $50 per barrel for most to make it difficult to maintain profitable drilling. However, the break-even costs for major oil producers in core regions have declined significantly, enhancing their ability to withstand volatility.

In a low oil price environment, shale oil producers typically choose to exercise restraint rather than blindly expand, with capital efficiency and a healthy balance sheet being their core operating principles.

Independent energy expert Anas Al-Haji added that low oil prices primarily influence investment decisions rather than directly affecting production decisions. While production may gradually decline as investment scales back, current oil prices are far from falling below operating costs seen in 2020, and long-term projects such as those in the Gulf of Mexico are less affected by short-term price fluctuations.

Simon Wang of Gabelli Fund pointed out that some companies had previously locked in high prices through hedging, which supported the release of new production capacity. It is expected that US crude oil production still has room for a slight increase, and shale oil production may gradually stabilize by the end of this year or the beginning of next year.

Market Outlook:

An unexpected drop in inventories or sudden geopolitical disturbances in Venezuela, Nigeria, or other regions could trigger a temporary rebound in oil prices.

Simon Wang points out that "after removing demand uncertainties related to global GDP growth," the first quarter is typically a seasonally low season for demand.

Under the dual pressure of oversupply and weak demand, oil prices are likely to fall further.

From a technical perspective, oil prices continue to hold above 59.40 and 58.48 (and incidentally, above the psychological level of 60). These two support levels remain valid, and oil prices are expected to continue consolidating above them, waiting for the moving averages to complete their consolidation before launching another upward attack.


(Daily chart of US crude oil December futures contract, source: FX678)

At 20:40 Beijing time, the December WTI crude oil futures contract was trading at $60.11.