Oil prices fell this week after two weeks of steady gains as concerns about increased supply from Libya, Saudi Arabia and China outweighed the positive signals coming from China.
Saudi Arabia decided earlier this week to increase its oil production beginning in December. It has abandoned its previous target of maintaining $100 per barrel oil prices.
The return of around 500 barrels of oil per day from Libya, where a dispute over politics was settled on Thursday, could be facilitated by this.
The global oil price dropped after news that the Kingdom is considering increasing production in December.
Brent crude oil was trading at $70.64 per barrel on the Intercontinental Exchange, down from the $74.49 barrels that closed last week. Prices have dropped 5% since Monday.
West Texas Intermediate crude oil (WTI), on the other hand, has seen its price drop by 4% from Monday to around $67.28 per barrel.
China’s Central Bank cut rates on Friday and added much needed liquidity to its banking system.
The positive news did not lift the spirits of traders on oil markets. They were more focused on the prospects for a rising supply.
The prospect of a rising supply will continue to weigh on oil prices, even though China is the largest importer of crude oil in the world.
Matt Stanley, Kpler’s head of EMEA & APAC market engagement said, “When you boil it all down, we face the stark reality that demand is levelling off while supply continues to grow.”
OPEC Voluntary Supply Cuts to Reverse the OPEC Voluntary Demand Increase
Since last year, the Organization of the Petroleum Exporting Countries and its allies cut crude production by 5,86 million barrels a day to maintain oil prices.
The oil market, however, has been unable to maintain these gains, except for a short period of time in April, when Brent reached the high this year, $92 a barrel.
OPEC’s allies have been affected by the weak demand for oil from China, and the concern that more will be available on the market at the end of this year.
In June, OPEC decided to begin unwinding the voluntary production cuts of 2.2 millions barrels per days from October.
The cartel decided to delay the dissolution of the group by another two months in early April due to the falling oil price.
Only a few countries in the cartel are responsible for voluntary reductions.
Saudi Arabia has withheld 1 million barrels of oil per day from the market, in excess of the agreed quota, since the end of last year.
The oil market may experience a significant surplus if Saudi Arabia and its other members decide to undo some of their voluntary production reductions from December.
The International Energy Agency predicts that non-OPEC production of oil will increase by 1,5 million barrels a day between 2024 and 25.
The Paris-based energy monitor said that the oil production of OPEC, its partners and other countries is expected to fall by 810,000 barrels a day this year, and only rise by 540,000 barrels a day by 2025.
According to the IEA:
Unless there is a long-term standoff in Libya, OPEC+ could be facing a significant surplus even if it keeps its additional curbs in place.
Low Demand Keeps Prices Down
Global demand has shifted in the opposite way at a time of rising oil supplies.
According to the IEA the demand for oil increased by only 800,000 barrels a day in the first half 2024. This is a sharply smaller increase than 2023’s 2.3 million barrels / day.
In 2024, the growth of demand for oil is expected to reach 900,000 barges per day.
The IEA reported that “the rapid drop in the global growth of oil demand in recent months has been largely driven by China.” This, it said, had fueled a steep sell-off on oil markets.
Brent crude oil has fallen from an early-August high of over $82 per barrel to a three-year low around $71 per barrel, despite massive supply losses in Libya.
According to the IEA, China’s demand for crude oil is expected to grow by only 180,000 barrels a day in 2024, due to a general economic slowdown, and accelerated shifts away from petroleum to alternative fuels.
Beijing’s latest fiscal measures could support oil prices but the focus will shift to the country’s oil imports over the next few months.
The oil market is currently in a downward trend.
James Hyerczyk said that traders should continue to expect downward pressure for crude oil futures until significant changes in demand or supply materialize.
The post Oil Prices Drop Again as Fears of Market Oversupply Arise may change as new information is released.
