OPEC’s decision to delay an oil production increase for October and November has contributed to the recent slump in crude oil prices. The organization, along with its allies in OPEC+, agreed to extend their additional voluntary production cuts of 2.2 million barrels per day until the end of November 2024. This move was made in response to concerns over growing supply and waning demand. OPEC has stated that they are open to further delaying or reversing the production hikes if necessary.
Commodities strategists at ING have pointed out that the worldwide oil balance is likely to turn into a surplus next year, suggesting that continuing cuts into 2025 might be necessary. The uncertainty surrounding the demand outlook has outweighed the potential delay in supply increases. Fawad Razaqzada, a market analyst at Forex.com, has highlighted the struggles of China’s economy and the slowdown in the US economy as factors contributing to the softening demand for oil. These trends have increased concerns among investors that injecting fresh supply into the global energy markets will weigh on prices. Razaqzada believes that the excess supply will need to be reduced through either reduced oil production or a sudden lift in global economic recovery, neither of which appear likely in the near future.
China’s lackluster growth prospects have limited the rise of oil prices this year. The country’s manufacturing sector has been in contraction territory since May, while the services industry has also slowed down. The second-quarter GDP growth rate came in at 4.7 percent year over year, lower than the consensus estimate of 5.1 percent. These economic indicators have had a significant impact on the oil market and have contributed to the current slump in prices.
Despite the slowing manufacturing trends in the US and China, some experts believe that energy markets could be tighter than expected. Phil Flynn, an energy strategist at The PRICE Futures Group, argues that the supply versus demand is still extremely tight, which should keep inventories relatively tight as well. The American Petroleum Institute has reported a decline in commercial crude inventories, and domestic crude oil inventories have also been decreasing in recent weeks. This suggests that the market may be underestimating the demand for oil and that inventories may remain tight.
In addition to the factors affecting oil prices, a resolution to a dispute in Libya may also impact the market. The eastern government in Benghazi temporarily shut down all oil fields and suspended output and exports, resulting in a rally in crude prices. However, the two legislative bodies in Libya have agreed to jointly select a new central bank chief, indicating a potential return to normal oil production.
Overall, the recent slump in crude oil prices can be attributed to a combination of factors, including OPEC’s decision to delay production increases, concerns over growing supply and waning demand, lackluster growth prospects in China, and the potential resolution of the dispute in Libya. The market remains uncertain, and investors will be closely watching upcoming meetings and economic indicators for further insights into the future of oil prices.
