Crude oil prices experienced a sharp decline on Monday, falling nearly 2%, as the Organization of the Petroleum Exporting Countries (OPEC) revised its global demand forecast downward for the third consecutive time. Additionally, vague announcements from China regarding its economic stimulus efforts failed to reassure markets, contributing to the drop in oil futures.
OPEC's latest report projects that global oil demand will grow by 1.9 million barrels per day (bpd) in 2024, a reduction from the 2 million bpd previously forecast. The group also revised its 2025 outlook, now expecting demand to increase by 1.6 million bpd, down from 1.7 million bpd. The news weighed heavily on crude prices as traders digested the implications of slower demand in the near term.
The decline was marked across key benchmarks. West Texas Intermediate (WTI) crude, set for delivery in November, fell $1.48 or 1.96% to $74.08 per barrel. Brent crude, the global benchmark for December delivery, dropped $1.46 or 1.85% to $77.58 per barrel. Despite the pullback, both benchmarks have recorded modest gains for the year, with WTI up 3% and Brent nearly 1% higher year-to-date.
China, the world's largest importer of crude oil, continues to be a focal point for the energy market. Over the weekend, Chinese Finance Minister Lan Fo'an reiterated the country's commitment to economic stimulus during a press briefing but offered few concrete details, disappointing investors who had hoped for more decisive action. Traders were particularly disheartened by the lack of clarity on the scope and timing of the stimulus, which is seen as crucial for reviving global oil demand.
Tamas Varga, an analyst at oil brokerage firm PVM, highlighted the market's frustration, stating, "China's monetary stimulus measures failed to stimulate, and the weekend's pledge from the finance ministry to borrow more was long on clichés but short on reassuring and convincing details."
Adding to market uncertainty is the ongoing geopolitical tension in the Middle East, where concerns over a potential Israeli strike on Iran's energy infrastructure have heightened. U.S. officials, speaking to NBC News, indicated that Israel is narrowing down targets, including military sites and energy infrastructure, as it prepares a retaliatory strike. The heightened risk of conflict between Israel and Iran has kept the oil market on edge, with fears that a broader regional conflict could disrupt energy supplies and push prices back up.
Oil prices, which had hit their lowest levels since December 2021 in September, recovered briefly after an attack on Israel earlier this month, raising the market risk premium. Brent futures, which had dipped below $70 per barrel, surged back toward $80 after Israel's Prime Minister Benjamin Netanyahu vowed that Iran would "pay a price" for its aggressive actions. Analysts believe any potential Israeli retaliation targeting Iran's oil facilities could significantly impact global energy markets, given Iran's substantial exports.
However, with OPEC's forecast showing an oversupplied market for the remainder of 2024 and into 2025, the absence of a significant disruption in energy supplies could lead to a further decline in oil prices. The market will closely watch how events in the Middle East unfold and whether China's stimulus measures will have a tangible effect on boosting demand.
China's role in global oil demand cannot be overstated. Rystad Energy, a leading research firm, estimates that China's oil demand growth will slow substantially, contributing only 108,000 bpd in 2024. This comes as gasoline demand has plateaued, partly due to the increasing share of electric vehicles in China, which now account for over 50% of the market. The country's distillate demand has also dropped by 100,000 bpd as a result of the rise of liquefied natural gas (LNG) trucks and broader economic challenges.
Despite these challenges, China's economic trajectory will be a critical factor in determining global oil prices going forward. With the Golden Week holiday boost in demand fading, markets are awaiting more concrete fiscal policies from Beijing to assess the long-term impact on oil consumption.
In the meantime, the oil market remains vulnerable to geopolitical risks. Any escalation in the Middle East, particularly if it affects Iran's oil exports, could quickly reverse the current downward trend in prices. Iran's oil industry, which hit a five-year high in the first five months of 2024, is a critical component of the global energy market, and any disruption could cause significant volatility.
