The global oil market is currently experiencing significant price increases, driven by supply disruptions and the expectation of a monetary policy easing from the US central bank. Analysts at Rystad Energy have noted that despite these upward pressures on crude futures, apprehensions regarding demand persist, particularly amid economic challenges in China.
As reported on Tuesday, West Texas Intermediate (WTI) crude oil trading rose 1.7% to reach $70.16 per barrel, while Brent crude saw a 1.5% increase, climbing to $73.88. Last week's performance indicated a reversal from previous declines, further heightening market attention. Notably, Brent prices surpassed $73 per barrel on Monday, propelled by production interruptions in the Gulf of Mexico caused by Hurricane Francine and anticipation of an interest rate cut by the US Federal Reserve.
Rystad's senior analyst, Svetlana Tretyakova, highlighted that Hurricane Francine might lead to a production loss of approximately 1.8 million barrels within a time frame of 2.5 days in this crucial oil-producing region. Additionally, Libya's diminishing oil exports, resulting from ongoing disputes regarding the control of its central bank, are contributing to upward momentum in oil prices.
The protracted discussions led by the United Nations aimed at resolving this stalemate have yet to yield results. Tretyakova remarked that a reduction of 25 basis points in interest rates by the Federal Open Market Committee is becoming the preferred option in the current financial landscape, which could enhance oil demand in response.
The analysis indicates that the markets are delicately poised for any geopolitical disturbances, maintenance delays, and weather-related fluctuations that might disrupt the current balance. Current supply interruptions are mitigating some of the persistent concerns about the sluggish demand; however, their full effect on pricing remains to be seen.
Meanwhile, bearish sentiment surrounding demand in China persists, with recent data revealing that this country is experiencing its longest industrial slowdown since 2021. Diesel consumption remains weak, adversely impacting refinery operations since February. While there are indications that the current negative outlook might be overstated, lower oil prices could diminish the competitiveness of liquefied natural gas and spur a recovery in demand.
Last week, the International Energy Agency revised down its expectations for global oil demand growth for the year. Similarly, the Organization of the Petroleum Exporting Countries (OPEC) lowered its demand forecasts for both 2024 and 2025. Rystad Energy anticipates that global liquids and crude balances will remain tight through the year-end, despite ongoing issues surrounding weak demand.
In 2024, they project a decline of around 220,000 barrels per day in world crude oil supply compared to the previous year, driven by extended output cuts from OPEC and its partners, OPEC+, reduced production levels in Libya, and a lagging performance from non-OPEC+ countries. This complex landscape underscores both the volatility and the intricacies of the oil market, where supply and demand dynamics are constantly in flux..