By Agency Report
Nigeria’s Brent crude futures fell below $70 a barrel on Tuesday for the first time since December 2021, after OPEC+ revised down its demand forecast for this year and 2025, Reuters Reported yesterday
According to Reuters, Brent crude futures were down $2.33, or 3.24%, at $69.51 a barrel at 11:08 a.m. EDT. U.S. West Texas Intermediate crude lost $2.50, or 3.64%, to $66.21.
On Monday, both benchmarks had risen about 1%.
On Tuesday, the Organization of the Petroleum Exporting Countries (OPEC) in a monthly report said world oil demand will rise by 2.03 million barrels per day (bpd) in 2024, down from last month’s forecast for growth of 2.11 million bpd.
Until last month, OPEC had kept the forecast unchanged since it was first made in July 2023.
OPEC also cut its 2025 global demand growth estimate to 1.74 million bpd from 1.78 million bpd. Prices slid on the weakening global demand prospects and expectations of oil oversupply.
On Monday, Chinese data showed consumer inflation accelerated in August to its fastest in half a year, though domestic demand remained fragile, and producer price deflation worsened.
Data released on Tuesday showed China’s exports grew in August at their fastest in nearly 1-1/2 years, yet imports disappointed with domestic demand depressed.
“If we lose China this market is going to have a problem because OPEC just cannot cut enough to offset the U.S. and Brazilian position, and some of the other reservoirs at work,” said John Kilduff, partner at Again Capital.
Tropical Storm Francine barrelled across the Gulf of Mexico, on track to become a hurricane on Tuesday, the U.S. National Hurricane Center said.
Exxon Mobil (XOM.N), opens new tab, Shell (SHEL.L), opens new tab and Chevron (CVX.N), opens new tab removed offshore staff and halted some oil and gas operations at facilities in the Gulf of Mexico. Exxon cut production at its Hoover oil facility about 150 miles east of Corpus Christi, Texas.
Chevron withdrew workers from four offshore facilities and halted oil and gas output at two. Shell cut production at one platform, moved workers off three facilities and paused drilling at two.
But production shut-ins have failed to offset weak demand sentiment, analysts said.
“We have a hurricane bearing down in the Gulf and we are still selling off hard here,” said Again Capital’s Kilduff.
On Monday, Morgan Stanley cut its Brent crude oil forecasts for coming quarters and said the global oil market is facing a period of demand weakness similar to those seen during recessions.
Brent crude futures settled at their lowest levels since December 2021 on Friday at $71.06. Brent was trading around $71.74 a barrel as of 1026 GMT.
Rising fuel inventories, lower refining margins and the spreads between the price now and the price in the future all echo previous recessionary periods or other moments of weak demand, Morgan Stanley said
Those include the periods of falling demand in 2007-2008 due to the financial crisis and in 2020 due to the onset of COVID, the investment bank said. There are also parallels with non-recessionary periods of lackluster demand and higher supply in 2013 and in 1992-1993, the bank said.
The bank explored the possibility of oil prices acting as recessionary indicator but concluded that it was too early and acknowledged that the market was pricing in a substantial deterioration in the balance of supply and demand.
Seasonal demand strength usually subsides after summer, and supply from both OPEC and non-OPEC sources is likely to re-accelerate in the fourth quarter and 2025, leading to a shift in the supply and demand balance, the bank said.
However, the Organization of the Petroleum Exporting Countries and allies led by Russia, a group known as OPEC+, is focused on balancing the market, as evidenced by its decision to delay output increases that were due to start in October, the bank added.
Morgan Stanley expects oil markets to remain tight in the third quarter, move closer to balanced in the fourth quarter, and show a surplus of around 1 million barrels per day in 2025.
The bank cut its Brent price forecast for fourth quarter 2024 by $5 per barrel to $75, a level it now sees for all quarters next year. It had previously been forecasting Brent to average $78 in the first quarter of 2025 and to decline steadily throughout the year to $75 in the fourth.
It sees WTI prices at $70 a barrel until the fourth quarter of 2025.
“Although rising OPEC output is a key factor behind the surplus we model for 2025, we would be hesitant to argue that this justifies the recent price decline,” it said, adding that the market appears modestly oversold in the short term.
Unless demand weakens more, Brent will likely remain anchored around the mid-$70s, it added.