The global crude oil market experienced a significant downturn on Tuesday, as the prices of Brent and West Texas Intermediate (WTI) crude plummeted to their lowest levels since December 2021. This sharp decline was primarily driven by the Organization of the Petroleum Exporting Countries (OPEC) revising downward its demand forecast for both 2024 and 2025.
In its monthly report, OPEC stated that world oil demand would increase by 2.03 million barrels per day in 2024, down from the previous month’s forecast of 2.11 million barrels per day. This revision was largely attributed to a decrease in China’s projected oil demand growth, which was reduced from 700,000 barrels per day to 650,000 barrels per day.
The cartel highlighted that economic challenges and a shift towards cleaner fuels in China were hindering the country’s oil consumption. Despite this downward revision, OPEC noted that the year’s demand growth was still above the historical average of 1.4 million barrels per day seen before the COVID-19 pandemic.
For the following year, OPEC further lowered its estimate for global oil demand growth in 2025 to 1.74 million barrels per day from 1.78 million barrels per day.
US Energy Information Administration’s Outlook
In line with OPEC’s assessment, the US Energy Information Administration (EIA) also indicated that global oil demand would reach a new record high this year. However, the agency projected a slower growth in oil output compared to previous forecasts.
The EIA estimated that global oil demand would average around 103.1 million barrels per day in 2024, surpassing its previous forecast of 102.9 million barrels per day. This increase was largely driven by robust demand from emerging economies and a gradual recovery in air travel.
Market Dynamics and Supply Chain Challenges
The decline in crude oil prices was further exacerbated by several other factors. Asian refiners’ margins fell to their lowest seasonal level since 2020 due to increased supplies of diesel and petrol. This development overshadowed positive export data from China, which showed the fastest growth in over a year.
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Additionally, the market remained vigilant as Tropical Storm Francine approached the Gulf of Mexico, leading to the shutdown of approximately a quarter of offshore crude production. This disruption in supply contributed to the overall downward pressure on prices.
US Crude Inventories
The American Petroleum Institute (API) reported a further decline in US crude oil inventories for the week ending September 6, amounting to 2.79 million barrels. This followed a significant decrease of 7.4 million barrels in the previous week.
Implications for Global Energy Markets
The sharp decline in crude oil prices has significant implications for global energy markets. Lower oil prices can provide some relief to consumers and businesses facing rising energy costs. However, it may also impact the profitability of oil producers and could lead to reduced investments in exploration and production.
Moreover, the continued downward pressure on oil prices raises concerns about the long-term sustainability of energy supply. As the world transitions towards cleaner energy sources, it is crucial to ensure a stable and reliable supply of fossil fuels during the transition period.
