Crude oil is heading towards the largest weekly decline in nearly a year. OPEC, along with many analysts, has misjudged the prospects for rising crude oil demand in 2024. Just last month, the group forecast a rise in demand of 2 million barrels per day, but now it is increasingly likely that the International Energy Agency (IEA) was correct in predicting a below 1 million barrels increase, mainly due to decreasing demand in China where peak demand has likely already occurred. This is affected by a slowdown in economic growth and rapid development of electric and hybrid vehicles, which increases the demand for electricity while simultaneously reducing demand for petrol and diesel.
OPEC+ can influence supply but not demand, and currently, low demand is the main problem and cause for weakening prices. Until the situation stabilizes, OPEC will not be able to increase production, probably until next year. In the short term, one of the few actions OPEC can undertake is to put pressure on Iraq, Kazakhstan, and Russia to fully implement the required production cuts in compensation for earlier overproductions.
At this point, I believe the $70 per barrel of Brent crude oil is the limit the group may want to defend, either through verbal interventions, pressuring the aforementioned countries, or even further painful production cuts. Besides tracking economic data from China and the United States for signs of improvement, we should also wait for the stabilization of global refining margins and signs of their growth; otherwise, there can be no talk of any shortage in the crude oil market given the current situation.
This week, both WTI and Brent broke key support levels of $71.70 and $75, which now serve as resistance. If prices remain below these levels, speculators will perceive the market as an opportunity to sell on increases, instead of the previous “buy on dips” approach.
Ole Hansen, Head of Commodity Market Strategy, Saxo.
Source: https://ceo.com.pl/ropa-z-najwiekszym-tygodniowym-spadkiem-od-dawna-88247
