Oil Prices Plunge Amid Oversupply Concerns and Weak Demand
Oil has experienced its worst week in almost a year, and the new week seems to be following suit. This is due to concerns about oversupply and a lack of demand from China, which is currently facing a drop in employment and consumer confidence. China appears to be willing to risk a middle-class revolution rather than stimulate the economy.
Brent Tumbles Despite OPEC+ Postponement
Brent, a major trading classification of sweet light crude oil, saw a ~10% drop last week. This is despite the Organization of the Petroleum Exporting Countries (OPEC+) postponing its supply hike by two months. However, plans to revive 2.2 million barrels per day (b/d) over the course of a year remain in place. This means that the delay is merely postponing the inevitable. On Tuesday, Brent fell another 2%, sliding below $70 for the first time since 2021.
Commercial Stockpiles and Production on the Rise
Even as commercial stockpiles hit their lowest levels since 2024, market observers anticipate stockpiles to increase through the end of the year and into 2025. Meanwhile, production has been increasing in the United States, counteracting OPEC+'s efforts to limit supply. This increase is to keep up with demand, which remains steady and is also on the rise. Macquarie, an investment banking and diversified financial services group, predicts a record US output of 13.9 million b/d in 2024.
Saudi Arabia Cuts Pricing Amid Weak Demand
In response to weak demand, Saudi Arabia has reduced the pricing of its flagship crude grade for its main market in Asia for the next month. This bearish mood is difficult to combat, especially in a market that has failed to consistently rise despite geopolitical tensions. This suggests that concerns about demand are overshadowing other factors.
Hedge Funds Slash Bullish Oil Bets
Hedge funds have begun to reduce their bullish oil bets again, with net longs falling to a record low. This usually indicates a market bottom. Over the seven days ending on September 3, hedge funds and other money managers sold the equivalent of 117 million barrels in the six most important futures and options contracts. The combined position was reduced to just 93 million barrels, the lowest for at least a decade.
Negative Sentiment Extends to Refined Fuels
This negative sentiment has extended to refined fuels, with extremely bearish positions across gasoline and especially in diesel and other middle distillates. Investors are preparing for a further slowdown in consumption growth, amid signs of a manufacturing downturn in the United States, Europe, and China.
Industrial Downturn Pushes Prices Down
Currently, investor sentiment remains very negative, with focus on the threat of an industrial downturn pushing prices down even further. Even the OPEC⁺ announcement failed to halt the downtrend as traders interpreted it as confirmation of the deteriorating consumption outlook. Inflation-adjusted front-month WTI prices have fallen to an average of $69 per barrel so far in September, the lowest since early 2021.
Bottom Line
The oil market is currently facing a challenging period with oversupply concerns, weak demand, and a bearish mood dominating the scene. It's a complex situation that requires careful observation and strategic decision-making. What are your thoughts on this issue? Do you think the oil market will be able to recover from this downturn? Share your thoughts and discuss this article with your friends. Don't forget to sign up for the Daily Briefing, which is available every day at 6pm.
