Oil prices showed a slight rise early Tuesday, driven by a combination of strong demand expectations and concerns about supply disruptions. This follows a recent report by the Organization of the Petroleum Exporting Countries (OPEC), which highlighted the resilience of demand and warned of lower prices due to speculators. OPEC revised its forecast, predicting a slight increase in global oil demand for 2023 and maintaining its strong forecast for 2024.
Recent trends point to a complex interaction between factors affecting the oil market. Last week, prices fell to their lowest since July, driven by fears of weaker demand in major consumers such as the United States and China. This has been exacerbated by China’s shrinking exports and lower consumer prices.
In return, the United States plans to buy 1.2 million barrels of oil for the Strategic Petroleum Reserve, which could boost demand. Moreover, OPEC and its allies, including major exporters Saudi Arabia and Russia, have confirmed their commitment to additional voluntary production cuts until the end of the year, in the face of concerns about demand and economic growth..
The geopolitical landscape also shapes the dynamics of the oil market. The US crackdown on Russian oil exports, including the investigation of 100 vessels for violating sanctions, has raised fears of supply disruptions. At the same time, talks in Iraq to restart the oil pipeline through the Kurdistan Region and Turkey, which has been stalled since late March, could lead to additional supplies, which could offset some bullish sentiment in the market.
Given these factors, the short-term outlook for oil prices looks cautiously bullish. Although the market has seen a downtrend recently, this week’s price action suggests that crude may have found ground. Continued supply cuts by major exporters and potential supply disruptions due to geopolitical tensions likely to support prices.
Demand growth expectations lift oil prices supported by OPEC decisions+
The Organization of the Petroleum Exporting Countries (OPEC) said on Monday that market fundamentals were strong despite “exaggerated negative sentiment.” In the report, OPEC raised its forecast for global oil demand growth in 2023 to 2.46 million barrels per day, up 20,000 barrels per day from previous forecast. In 2024, OPEC expects demand to rise by 2.25 million bpd, unchanged from last month.
In its monthly report, the producer group also raised its forecast for global oil demand growth for 2023 slightly and stuck to its relatively high forecast for 2024.
OPEC said in a special article at the beginning of its report: “Recent data confirm the strong key global growth trends and health fundamentals of the oil market.”
The report said the market is healthy due to strong Chinese imports, minor downside risks to economic growth and a strong actual oil market.
“Oil prices have trended lower in recent weeks, mainly driven by financial market speculators.”
The price of oil fell to around $82 per barrel of Brent crude from a 2023 high in September near $98. Concerns about economic growth and demand have weighed on prices, despite support from supply cuts by OPEC and its allies, and conflict in the Middle East.
The lifting of epidemic lockdowns in China helped boost oil demand in 2023. OPEC has consistently predicted stronger demand growth next year than other forecasts such as the International Energy Agency.
This is the last report before OPEC and its allies, known as OPEC+, meet on November 26 to determine policy. The group has been cutting production since late 2022 to support the market and its latest agreement calls for production curbs throughout 2024.
The report also said OPEC oil output rose in October despite pledges supply cuts, driven by increases in Nigeria, Iran and Angola.
Oil prices rise on demand growth expectations and OPEC+ decisions
Oil prices rose on Tuesday after the International Energy Agency raised its demand growth forecast, adding to bullish sentiment from OPEC’s guidance the previous day.
Brent crude futures rose 20 cents, or 0.2 percent, to $82.72 a barrel. US West Texas Intermediate crude futures rose 21 cents, or 0.3 percent, to $78.47.
The IEA raised its forecast for oil demand growth for 2023 and 2024 despite an expected slowdown in economic growth in almost all major economies.
The IEA raised its growth forecast for 2023 to 2.4 million bpd from 2.3 million bpd. For 2024, it raised its forecast to 930,000 bpd from 880,000 bpd.
OPEC on Monday blamed speculators for the recent price decline. The Petroleum Producers Group revised slightly to its forecast for global oil demand growth in 2023 and stuck to its relatively high forecast for 2024.
Tamas Varga, an analyst at BVM Oil, said of OPEC’s results: “The central bank of the oil market sees a strong economy leading to strong demand, not only for its oil but globally as well.”
Oil prices fell last week to their lowest since July, weighed down by fears that demand could fall in the United States and China, the biggest oil consumers. Chinese consumer prices fell in October to levels not seen since the Covid-19 pandemic and exports for the month contracted more than expected.
Meanwhile, the US Department of Energy plans to buy 1.2 million barrels of oil to help replenish the Strategic Petroleum Reserve after selling record volumes of inventories in 2022, which could boost demand further. A US CRACKDOWN ON RUSSIAN OIL EXPORTS COULD DISRUPT SUPPLIES, FURTHER SUPPORTING PRICES.
Oil Market Developments and OPEC+ Outlook Prevail Over Market Guidance
Market focus is now shifting to upcoming events, including the International Energy Agency’s latest oil market report and major US economic data releases. In addition, developments from the APEC summit and China’s potential monetary policy actions will be closely monitored, as they may further affect oil price trajectories. The next OPEC+ meeting, scheduled for November 26, is also expected as it could provide further insights into the group’s strategy amid evolving market conditions. OPEC also pointed to the strength of actual crude oil markets as another sign of market health.
“The strong actual crude market is further reflected in the strong crude differentials seen in almost all regions in October and continued into early November,” OPEC said.
The OPEC report showed that total commercial oil inventories in OECD countries fell by 15.6 million barrels month-on-month to 2.78 billion barrels in September.
This represents a decline compared to the last five-year average of about 118 million barrels. It is also 184 million barrels lower than the 2015-2019 average.
Preliminary data shows that US commercial oil inventories fell 9.1 million barrels month-on-month in September to 1.26 billion barrels, about 32 million barrels higher than the September 2022 reading, but 20.6 million barrels lower than the average of the previous five years.
Technical Analysis: Oil Prices Rise as Moving Averages Exceed
Oil is trading at $78.73 per barrel and technical analysis points to an uptrend. Crossing moving averages and buy signals from the MACD indicator supports growth.
