Crude oil cheapest since July

Crude oil surprises again. Yesterday's price drop by almost 5%. caused the prices to be the lowest since the beginning of July this year. Since the September peak, the Brent variety has become cheaper by almost 20%. in turn, the American one decreased at the same time WTI reached the level of almost 24 percent. This is all the result of concerns about global demand and growing oil reserves in the United States.

Attention to global demand

Yesterday's sale on crude oil marketj was significant, but not the largest this year. The price overcomes the lows from last week intensified the sale. Thus, most of the increases from the holiday period evaporated. Concerns about the escalation of the conflict in the Middle East (mainly about the involvement in the war of other countries that play a significant role on the supply side) did not last long. The raw material became more expensive only for less than 2 weeks since the outbreak of this war. Now this factor plays a marginal role and attention is once again focused on global demand.

One of the factors that could have triggered such a reaction was the release of oil stocks in the US. These increased by 3,6 million barrels last week. It added to the downward pressure information from EIA about record production levels (13,2 million barrels per day) in the United States. Additionally, yesterday we learned the result of industrial production, which shrank by 0,6% in October, the main reason for which was the United Auto Workers' strike. This event left an impact on the level of motor vehicle production. It can be concluded that slower production and increased supply confirm the theory of slowing demand.

Of course, this is not the end of the reasons for yesterday's dynamic declines. Sentiment on the oil market is also shaped by incoming data from China. According to the National Bureau of Statistics, raw material processing in refineries in the Middle Kingdom fell by 2,8% in October. to the equivalent of 15,1 million barrels per day. This is also evidence that demand from China is falling. It is clear that the impact of reopening the economy after the pandemic on oil is slowly disappearing. In addition, there is the seasonal impact of demand, which usually slows down in winter.

Voluntary production cuts?

OPEC blames speculators for the recent price drop and adds that the negative sentiment is exaggerated. At the same time, the cartel states that Chinese imports of the raw material remains at a high level. Growth in October was 11,4 million barrels per day.

Now the focus will shift back to Saudi Arabia and Russia. The market is starting to ask itself whether these countries will decide to extend the voluntary production cut of 1 million barrels per day (which is valid from July until the end of this year), or whether they will return to previous production levels. According to the forecast of the International Energy Agency, the oil market would be significantly oversupplied in the first half of 2024. if the production cut were withdrawn at the turn of the year. If these countries returned to previous levels, the price of oil would come under even greater pressure. If Saudi Arabia maintained its current production levels, it would significantly reduce the risk of oversupply and thus allow the price to rise.

The black gold market is likely to tighten significantly in the second half of 2024 due to forecasts of rising global oil demand, which should allow Saudi Arabia to increase oil production again in mid-year without the risk of falling prices. In turn, according to reports from the US Energy Information Administration, there is no significant increase in the production of raw materials in the US next year.

Source: OANDA TMS Brokers