On October 15th, international crude oil prices continued to plummet, with WTI (West Texas Intermediate) crude oil falling by more than 5% during the day, and Brent crude oil dropping nearly 5%. Market observers noted that despite ongoing geopolitical tensions, the market's expectations for global oil demand have been continuously revised downward, putting pressure on oil prices.
Oil prices significantly gave back geopolitical premiums
In the early hours of the 15th, a significant easing of geopolitical tensions in the Middle East led to a substantial drop in oil prices.
On the 15th, the crude oil market traded on the easing of tensions in the Middle East, significantly giving back geopolitical premiums. Coupled with other unfavorable factors, a general decline in major asset classes also amplified the drop in oil prices.
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Regarding the subsequent trend in the crude oil market, Liu Shunchang pointed out that the drivers of the crude oil market are beginning to return to their own fundamental supply and demand. OPEC and non-OPEC oil-producing countries (OPEC+) will start to increase production in December. The extremely strong hurricane "Milton" in the United States has put pressure on the U.S. economy and employment, and it may be seen later that the number of initial jobless claims continues to increase on a weekly basis and the number of non-farm employment in October will significantly decrease; domestic fiscal stimulus awaits further policy implementation, and short-term market optimism has weakened somewhat.
Overall, with increasing supply and weak demand, oil prices continue to face pressure. The probability of Brent crude oil breaking through the support level of $75 per barrel is high, and it may further下探 to the previous low point near the integer level of $70.
Huang Liunan believes that after the international oil prices soared in the past two weeks, although they have been continuously adjusted in the past two days, the upward trend may not be completely over, and it may return to a stronger trend in the next 3-4 weeks. First, the probability of short-term geopolitical risk escalation remains high, and the market may repeatedly speculate on geopolitical risks, and the oil market's trading of geopolitical premiums may quickly heat up to a white-hot level.
In addition, the short-term production cut execution rate of OPEC+ is still increasing. In September, OPEC+ production fell to the lowest level in nearly three years at 33.52 million barrels per day. Moreover, there is also a situation where the supply of U.S. shale oil is lower than market expectations. In the medium and long term, the inflection point of a sharp drop in oil prices may be postponed until the end of the year.
Overall, the recent trend of oil prices has been synchronized with the yield of long-term U.S. Treasury bonds. Therefore, if the market bets on the weakening of the Federal Reserve's interest rate cuts in the next month or so, oil prices may follow the rebound of the 10-year yield of U.S. Treasury bonds, until a new round of interest rate cut signals appear and fall. Short-term geopolitics are still worth paying attention to and may amplify price disturbances, but they are not the essential factors of market fluctuations.
The market's expectations for crude oil demand have been revised downwardMarket observers have indicated that against the backdrop of the diminishing impact of geopolitical events on international crude oil supplies, it is anticipated that the subsequent geopolitical risk premium will quickly unwind, and the crude oil market will focus on the impact brought by fundamental factors. Currently, the supply and demand in the crude oil market are weakening, and there is still room for oil prices to fall.
On October 14th, OPEC lowered its forecast for global oil demand for the years 2024 and 2025 for the third consecutive month in its October Monthly Oil Market Report. The report reduced the global daily oil demand forecast by 100,000 barrels compared to the September forecast, estimating a global average daily oil demand of 19.3 million barrels in 2024 and 16.4 million barrels in 2025. The OPEC report stated that the downward revision of the demand forecast was due to consumption being lower than expected in some regions. The OPEC report still set the production target at 42.8 million barrels per day in 2024 and 43.2 million barrels per day in 2025, which is significantly higher than the estimated daily crude oil production of the reduction alliance based on secondary data, which was 40.1 million barrels per day in September, especially after the reduction in Libya and Iraq, the alliance's daily crude oil production decreased by 530,000 barrels in September compared to August.
The U.S. Energy Information Administration (EIA) also recently lowered its estimates for next year's crude oil demand and oil price forecasts. The EIA believes that the escalating conflicts in the Middle East in recent weeks, with no potential solution on the horizon, have increased the possibility of supply disruptions and price volatility. However, should a supply disruption occur, a large amount of excess crude oil production capacity may be released. It is expected that by 2025, global daily oil consumption will increase by 1.3 million barrels, lower than the 1.5 million barrels estimated in the September report. The consumption growth for this year is expected to remain at 900,000 barrels. On the supply side, it is expected that global crude oil production will increase by 2 million barrels per day next year, reaching 104.5 million barrels per day, lower than the previously estimated 104.6 million barrels per day; at the same time, it is expected that U.S. crude oil production will decrease from the previous 13.7 million barrels per day to 13.5 million barrels per day.
Meanwhile, the International Energy Agency (IEA) monthly report shows that the growth in oil demand for 2024 and 2025 is expected to be nearly 900,000 barrels per day and slightly above 1 million barrels per day, respectively, slowing down compared to the significant growth during the pandemic in 2022-2023. China, as a major driver, has contributed to this change with its slowing demand growth, decreasing from nearly a 70% contribution rate in the peak pandemic year to about 20% in the next two years. At the same time, global oil supply is expected to decrease by 640,000 barrels per day in 2024, mainly affected by political turmoil in Libya and maintenance work in Central Asia and Norway. Non-OPEC+ countries, especially those in the Americas, will continue to lead supply growth. Refining profits are expected to decline further due to the deterioration of gasoline, jet fuel, and diesel prices, although crude oil prices have improved due to a relatively tight market. As a result, the global crude oil operating rate is adjusted downward, to 82.8 million barrels per day in 2024 and 83.4 million barrels per day in 2025.