Crude oil futures have reached their lowest levels of the year, driven by concerns over sluggish global demand, including from major oil importer China, and the prospect of a production increase by OPEC+ in October. On September 4, Brent crude for November delivery fell by $4.91 per barrel (bbl) to settle at $73.75, marking a year-to-date (YTD) low of $72.63 per barrel. Similarly, West Texas Intermediate (WTI) crude also hit a YTD low, dropping to $69.19 per barrel.
According to StoneX analyst Fawad Razaqzada, recent data indicating no acceleration in import demand from China, Europe, or North America suggests that the oil market may not be as tight as previously anticipated.
In a recent development, OPEC+ has agreed to postpone the planned reduction of production cuts, which was initially scheduled to begin in October. Anonymous sources within OPEC+ informed on Tuesday that the group now plans to start easing output cuts in December.
Despite a temporary increase in oil prices following the release of the Energy Information Administration (EIA) crude inventory data and the OPEC+ announcement, prices quickly retreated. WTI crude fell to $69.30 per barrel, while Brent dropped to $72.70 per barrel.
Ritterbusch analysts noted that OPEC+ faces a challenging situation, as its efforts to support oil prices are being undermined by a prolonged loss of market share to non-OPEC producers. This loss of revenue, coupled with a lower pricing environment, is raising concerns about the budgetary needs of key OPEC producers.
Commodity analysts at Standard Chartered revealed that oil markets are currently influenced by trend-following strategies and volatile views on U.S. macroeconomic conditions and geopolitical events. According to Standard Chartered, recent declines in oil prices have been exacerbated by the actions of trend-following algorithmic Commodity Trading Advisors (CTAs). While there is potential for a short-covering rally, the analysts warn that the current negative sentiment among CTAs could dampen any substantial price increases.
Additionally, the potential return of Libyan oil to the market is impacting prices. Progress towards resolving the dispute that has halted approximately 700,000 barrels per day of Libyan crude. Sadiq al-Kabir, the former governor of the Libyan central bank, indicated that an agreement between Tripoli and Benghazi authorities is imminent. However, Standard Chartered cautions that the situation is more complex than implied, with no substantial agreements yet in place.
Looking ahead, Standard Chartered’s oil market fundamentals for Q4 2024 remain largely unchanged, with projections of a 0.5 million barrels per day (mb/d) inventory draw, assuming planned OPEC+ cuts are implemented. The EIA and the International Energy Agency (IEA) also forecast similar inventory draws, representing a significant year-on-year improvement compared to Q4 2023.
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