Oil prices plunged on Tuesday, reaching their lowest levels since December 2021, as the Organization of the Petroleum Exporting Countries (OPEC) slashed its demand growth forecast for the coming years. This sharp decline underscores the growing concerns about weakening global demand, particularly from China, and its impact on the energy market.
West Texas Intermediate (WTI) crude fell over 3% to hover near $66 per barrel, while Brent crude, the global benchmark, dropped below $70 per barrel. This marked a significant dip, with Brent hitting $69.08 per barrel, the lowest since December 2021, and WTI reaching $65.82 per barrel, the lowest since May 2023. These declines highlight a bearish sentiment that has gripped the oil market as concerns about global economic health persist.
In its latest monthly report, OPEC revised its 2024 oil demand growth forecast downward by 80,000 barrels per day (bpd) to an estimated increase of 2.0 million bpd. The forecast for 2025 was also adjusted slightly lower. The primary driver behind this downward revision is the ongoing economic challenges in China, which have been exacerbated by a housing crisis and a shift towards natural gas, a cleaner and cheaper alternative to oil.
"Diesel demand was subdued by weak manufacturing, construction, and trucking activity, as well as the penetration of LNG [liquified natural gas] trucks, weakening the demand for transportation diesel," OPEC's report noted.
China, the world's largest crude oil importer, has been facing significant economic headwinds, leading to a slowdown in demand. This has been a major factor in OPEC's decision to lower its forecasts, and the ripple effects are being felt across the global oil market. The U.S. Energy Information Administration (EIA) has also adopted a cautious outlook, predicting oil demand growth of just 1.1 million bpd this year, further dampening market sentiment.
Wall Street analysts have responded to these developments by lowering their price targets for crude oil, citing weak demand from China and increasing signs of economic strain in the United States and Europe. The end of the summer driving season, a period typically marked by higher fuel consumption, has also contributed to the downward pressure on prices.
The recent downturn in oil prices has had a noticeable impact on gasoline prices in the United States, with some analysts predicting that the national average could drop to $3 per gallon by the end of the year. This would be a welcome relief for consumers but signals broader concerns about the health of the global economy.
Adding to the uncertainty, traders have been closely monitoring the potential impact of Tropical Storm Francine, which is currently threatening the Gulf Coast, home to a significant portion of U.S. oil and gas production and refining capacity. However, Andy Lipow of Lipow Oil Associates suggested that the storm's impact on supply and prices would likely be minimal, barring a significant flooding or storm surge event. "Barring a flooding/storm surge event, I don't foresee this storm affecting either supply or price to any significant degree. The consumer will get their gasoline," Lipow said in a note.
Despite the immediate concerns posed by the storm, the broader trend in the oil market remains bearish. Both WTI and Brent crude have erased their year-to-date gains, with WTI down roughly 5% and Brent down about 8% for the year. This decline reflects the market's growing pessimism about the global economic outlook and the challenges facing the energy sector.
