Oil prices witnessed a sharp decline on Tuesday, reaching their lowest levels since mid-June. This decline was a result of expectations of excess supply and persistent concerns about demand, which negatively impacted market sentiment.
Impact of interest rate cuts in China
The surprise cut in interest rates by China, the largest oil importer, did not provide the expected support to the markets. Analysts said that this reduction was less than what was required to boost confidence in the Chinese economy.
Current price levels Brent crude futures expiring in September fell 0.2% to $82.26 per barrel. West Texas Intermediate crude futures also fell 0.2% to $77.20 per barrel
Near-term price forecasts Despite the challenges, Morgan Stanley expects oil prices to end the third quarter at $86 per barrel, indicating a potential near-term upside from current levels.
Uncertainties about demand forecasts Markets remain skeptical about the prospects for demand for crude oil, as global economic growth slows due to pressure from rising interest rates. Despite China’s unexpected cut in interest rates to boost growth, analysts believe that this cut was insufficient to inspire confidence in the markets.
Economic slowdown in China The third plenary session of the Chinese Communist Party did not yield concrete signals about the stimulus measures expected from Beijing, at a time when the Chinese economy grew less than expected in the second quarter. This economic slowdown does not bode well for oil demand.
American political scene In the United States, the focus was on politics as President Joe Biden announced that he would not run for re-election, endorsing Vice President Kamala Harris as the Democratic Party’s nominee.
The impact of geopolitical tensions on oil futures
Crude oil futures fell to their lowest level since early July, despite rising geopolitical tensions. A note from Goldman Sachs on Tuesday indicated that the market views tensions in the Middle East as a potential threat to oil supplies, bringing the oil price risk premium close to zero.
Energy prices today
– West Texas Intermediate (September contract): $77.94 per barrel, down 46 cents, or 0.59%. The price of US crude oil has risen by 8.7% since the beginning of the year.
– Brent (September contract): $81.97 per barrel, down 45 cents, or 0.55%. The global index has risen by 6.4% since the beginning of the year.
– Gasoline RBO (August contract): $2.46 per gallon, down one cent, or 0.45%. The price of gasoline has increased by 17% since the beginning of the year.
– Natural gas (August contract): $2.22 per thousand cubic feet, down 3 cents, or 1.38%. Gas is down 11.6% since the beginning of the year.
Market forecast
Although summer gasoline demand does not support higher oil prices, analysts expect the third quarter to be tighter, especially with US crude inventories declining for three consecutive weeks. However, gasoline demand was weak for the week ending July 12, falling by 615,000 barrels per day.
Supply risks
Wildfires in Alberta pose a potential threat to Canada’s crude supplies, although production has remained strong so far. According to Goldman, the worst of the wildfire season is likely to come, with a third of the fires burning out of control, threatening production of 400,000 barrels per day.
2024 forecast
The oil market is expected to be slightly undersupplied by 200,000 barrels per day in 2024, with demand expected to continue rising through this year, according to a note from UBS dated July 22.
Gas and oil prices decline amid market fluctuations and expectations of more pressure
European natural gas prices saw a notable decline yesterday, with TTF stock falling by around 1%, but prices remain steady above €31 per megawatt hour. Despite this, we expect prices to weaken this quarter, with European inventory 83% full, which is close to year-ago levels and well above the five-year average of 73%. LNG supply risks have also begun to ease as gas flows to the US Freeport LNG export plant recover after Hurricane Beryl’s disruptions.
On the London Intercontinental Exchange, the September 2024 contract for Brent crude fell by 0.02% to settle at $82.38 per barrel. On the Nymex Commodity Exchange in New York, the price of West Texas Intermediate crude for September delivery fell 0.1% to $78.32 a barrel. WTI is the main benchmark for oil prices in North America, and has a pivotal role in pricing crude oil in the US market.
This slight decline reflects ongoing market adjustments, as investors react to a range of factors including geopolitical tensions, economic data, and changes in global oil supply and demand dynamics. Brent crude oil, one of the main global standards, is used as a reference for oil pricing in Europe, Africa, and the Middle East.
Oil prices came under pressure as a result of continued demand concerns, while the copper market weakened on the back of rising inventories. Despite the ongoing pressures, we remain optimistic about the market during the third quarter and expect prices to rise from current levels.
OPEC+ cuts are expected to tighten the market during this quarter, but the extent of this tightening depends on the development of Chinese demand. Hungary and Slovakia have asked the European Union to persuade Ukraine to allow the resumption of Lukoil crude oil flows, which is the transportation of Russian oil through Ukraine.
