The first week of September ends as a clear example of the tensions that oil has been suffering in recent years. The situation that the market is experiencing, and which has become evident in the last five days, can be easily explained in one sentence: there is a lot of oil. The combination of a slowdown in demand, due both to a temporary slowdown in growth, which gained weight after the publication of US employment data in August, and to the incorporation of alternative energy sources, with an increasingly high global supply of crude oil. it seems that there is no other way out than to exert downward pressure on the prices of the energy resource. This week, the price of a European barrel has fallen every day and closes with a drop of almost 10%. This is the worst that has been experienced since December last year.and deepens the falls that we know in 2024 until bringing the barrel to the lowest prices observed in almost three years, since December 2021.
The main bullish factor for oil in recent years has been the agreement of the cartel of producers known as OPEC+ (members of the Organization of the Petroleum Exporting Countries and their external partners), which has tried, at the expense of its revenues from the sale of crude oil, to keep prices high. It has done so by limiting its own production, but in recent weeks the impact of its policy has been insufficient to prevent the price falls that are occurring.
Actually, This week, the cartel’s inability to keep the price of a barrel near $80 became evident.. The cartel, which had announced in June its intention to gradually increase its production, and thus begin to benefit from the revenues that crude oil would generate at relatively high prices, had to reverse this decision, due to the fall in the price of the barrel after the publication of its intentions. The cartel announced that it was delaying the start of the process of increasing supply until December, but that the plan was still underway, a decision that it will probably have to clarify if crude oil prices continue to suffer the declines seen this week.
The announcement by OPEC+ to delay the start of this increase in supply did not have the effect of pushing up the price of a barrel. At first, there was a rebound in prices, but a few hours later, markets seemed to focus on the underlying reality of crude oil, which is a reminder that there will be plenty of barrels on the market, at least for next year. The chief economist of the oil company BP, Spencer Dale, had already warned at the end of July that OPEC+ would have a lot of trouble implementing its plan to increase supply, and his bet seems to be coming true.
In 2025, there will be a lot of oil, and the market knows it
Estimates from the International Energy Agency, one of the world’s leading analysts, point to an oversupply. The agency’s forecast calls for consumption to increase by less than 1 million barrels per day next year, or about 1% from 2024 levels, as the impact of pandemic stimulus fades, the economy takes on the slump in China and slowing growth in the United States, combined with the impact of the shift to electric cars.
Thus, the small increase in demand expected for next year will be largely exceeded by the new oil production that will arrive on the market. The main culprit is OPEC+’s biggest enemy of late: the United States. The North American giant continues to increase its oil production and the agency’s estimates suggest that global supply will exceed demand growth by 50%, leading to an increase in global inventories and, consequently, greater downward pressure on the price of a barrel.
