OPEC cut its forecast for oil demand growth this year and next for the third month in a row as the group belatedly recognized a slowdown in global fuel use.
The Organization of the Petroleum Exporting Countries said in its monthly report that global oil consumption will increase by 1.9 million barrels per day – nearly 2% – in 2024, or 106,000 barrels per day lower than previously forecast. It said the adjustment was “largely due to actual data received along with slightly lower expectations” for some areas.
With three consecutive cuts, OPEC has begun to roll back the strong bullish forecast it held throughout this year. Even after the cuts, its demand estimates remain anomalous — above Wall Street banks and trading firms, and at the upper end of the range expected by Saudi oil company Aramco. It’s almost double the rate seen by the International Energy Agency.
The actions of OPEC members themselves point to a lack of confidence in the prospects of its Vienna-based secretariat, which has delayed their plans to restore stalled crude oil production even as the cartel’s forecast points to a large supply shortage.
OPEC and its allies, led by Saudi Arabia, will gradually recover 2.2 million bpd in monthly installments starting in December, a two-month delay from the original plan. Market watchers such as JPMorgan Chase & Co. and Citigroup remain skeptical that they will continue to do so amid slowing growth in China, the largest consumer, and supply inflation from the Americas.
While crude oil prices have risen due to the conflict in the Middle East, $77 per barrel is too low for some OPEC countries. The coalition’s efforts to support prices have been undermined by countries that have failed to meet their cuts – notably Iraq, Kazakhstan and Russia.
Oil prices fall due to demand concerns and Chinese stimulus
Oil prices on Monday erased almost all of last week’s gains after data showed low inflation in China and a lack of clarity on the country’s economic stimulus plans raised concerns about fuel demand in the world’s top crude importer.
Both benchmarks gave up all their gains from last week, falling more than 1.5% a barrel earlier on Monday, before recovering some ground. Brent rose 99 cents last week, while West Texas Intermediate rose $1.18.
Deflationary pressures in China worsened in September, according to official data released on Saturday, and a press conference the same day left investors guessing the total size of the stimulus package to revive the fortunes of the world’s second-largest economy.
Negative news from China outweighed market concerns about the remaining possibility that Israel’s response to Iran’s Oct. 1 missile attack could disrupt oil production, even though the U.S. has warned Israel against targeting Iran’s energy infrastructure.
“The CPI reading from China indicates a sustained deflationary trend and weaker domestic consumption despite the authorities’ announcement of the strongest monetary stimulus in September,” Priyanka Sachdeva, an analyst at Philip Nova, said in a note on Monday.
The CPI came in below expectations, and the PPI fell at the fastest pace in six months, down 2.8% year-on-year, according to China’s National Bureau of Statistics.
IG market analyst Tony Sycamore described the briefing by China’s finance ministry on Saturday as a “failure.”
“The necessary fiscal measures to remove negative risks to growth and ignite animal spirit among Chinese consumers are (unclear) in their absence,” Sycamore said.
Forecast for 2025: Will it be the year of higher oil prices?
As we enter October, the crude oil market finds itself riding waves of uncertainty, trapped between rising geopolitical tensions and volatile supply dynamics.
The situation carries high stakes, with the world intensely focusing on the Middle East as political conflicts threaten to cause major supply disruptions.
A hurricane hitting U.S. oil infrastructure further complicates the situation, making it clear that crude oil faces a wild journey ahead.
The growing tension between Israel and Iran is at the core of the current crisis. With missile attacks and talk of retaliatory strikes on Iran’s oil infrastructure, the market is bracing for potential chaos.
If Iran’s oil exports are significantly curtailed, we could see Brent crude prices rise significantly. The Strait of Hormuz, a vital choke point where 20-25% of the world’s oil flows, is critical. Any turmoil here would send shockwaves through oil markets, pushing prices into uncharted territory. As world leaders grapple with this high-stakes geopolitical game, the question remains: Can OPEC+ stabilize the market if things get out of hand?
OPEC+: The Reserve Energy Dilemma
As geopolitical tensions push prices higher, OPEC+ has a card to play with – its spare production capacity, which Saudi Arabia and the UAE primarily have.
This pillow, which is about 5.86 million barrels per day, may help mitigate some supply shocks. However, the concentration of this reserve capacity in the Middle East is a double-edged sword.
If conflict spreads, OPEC+’s ability to intervene could be jeopardized, keeping the market on edge. Even if OPEC+ intervenes, the ongoing tension could keep upward pressure on prices, suggesting that we may see a long period of rising oil costs.
As if geopolitical tensions were not enough, Hurricane Milton added to the turmoil. The hurricane wreaked havoc on U.S. oil infrastructure
