Few would have bet just a month or two ago that Brent oil, the European benchmark, would fighting not to lose $70 a barrelwhile in July it struggled to reach $90 amid supply shortages, geopolitical tensions and production disruptions in Libya (one of Africa’s largest producers). However, fears of a deep global economic slowdown (particularly in the United States, Europe and China) and OPEC’s unsustainable situation have turned the market upside down in a matter of weeks. The cartel has delayed the “return” of 2.4 million barrels of crude oil per day to the market, fearing that the price of oil will continue to fall. However, investors know that OPEC’s plan is not viable (the cuts increase the market share of its competitors) and that sooner or later the cartel will open the crude oil floodgates, putting downward pressure on prices. Cutting production permanently means handing the crude oil market over to the rest of the world’s producers.
So, after a day of rest (it closed Monday with increases of 1%), oil is returning to its old habits and is down today by just over a percentage point to lose 71 dollars per barrel of Brent (reference in Europe), down to levels not seen since December 2021. Data published this Tuesday by China reveal that demand for crude oil is falling at a rate of 7% over a year, which does not suit the Crude oil price drops again after suffering a (weekly) drop last week not seen since 2023.
Meanwhile, OPEC continues to speak of “speculative selling” in the market in its September monthly report. Although the cartel was not as specific as on other occasions when it directly blamed speculators for the selling in the crude oil market, it once again spoke of speculative movements and the notable decline in long positions (money) on which people bet on the rise of oil) in the markets, due to the decisions of investment fund managers and hedge funds.
In addition, OPEC admits demand will grow less than expected. This represents an annual growth in demand of 2.03 million barrels per day in 2024 and 1.74 million barrels per day in 2025. It is worth recalling that a month ago (in the previous monthly bulletin) it was expected that the increases would be 2.11 and 1.78 million barrels per day, respectively.
Oil is therefore facing a rather uncertain short-term future. On the one hand, even though the Organization of the Petroleum Exporting Countries (OPEC) has delayed the return to the market of some of its cuts, it seems clear that the beginning of the end of the cuts is near (it won’t be in October, but it will be produced in December).
Several cartel countries are eager to turn on the taps again and regain market share after years of losses to America (the United States, Canada, Guyana and Brazil). On the other hand, the probable return of the Libyan oil market (increasing supply) in a few weeks, the notable slowdown in the Chinese economy (reduces demand) and the risk of recession in the West (would also reduce demand). If all these risks end up materializing, the oil market could experience a new fall. The year that was announced as a bull could turn out to be quite the opposite.
“Weak demand in China has weighed on the crude oil market in recent weeks and is expected Consumption is also weakening in Europe and the United States as summer approaches (the best season for gasoline consumption) is coming to an end and refineries are going into maintenance mode,” they point out. Bloomberg.
Technical aspect of oil is worrying
Technical analysis, which many investors use to make their investment decisions, doesn’t look good either. Jeanne Cabreroadvise EcoTraderbelieves that Brent oil could even fall to $62 after losing a key support: “Technically, the price of Brent futures has lost the key support it had found at $74. This risk could witness a broader corrective process,” the expert explains in statements to elEconomista.es.
Furthermore, Cabrero believes that “In the worst case, the price of Brent could reach $55.which would be confirmed if a future decline were to break through last year’s lows around $62.25, which is at 10-12% and which is the target to consider after losing $74. A fall towards last year’s lows would be very likely if it lost $70, which one could say is the last bastion left for Brent,” believes the technical analysis expert.
Gavekal Research explains that “international oil prices have been clearly the victim of expectations of a slowdown in the US economy, as well as falling demand in China.” The announcement last Thursday that the OPEC+ cartel of oil exporters would delay planned production increases, which would have added 2.4 million barrels per day to global markets by September 2025, has done nothing to stop the decline,” these experts say.
“While net long positions of investors in oil futures markets are at their lowest level since December 2023, this week had started with slight increases in the crude oil market. A few increases that do not erase the resolutely bearish sentiment which could lead oil to test support around $70 per barrel for Brent,” they explain from Gavekal.
Citi analysts are even clearer and ask their clients to take advantage of any (temporary) rise in oil caused by the disruptions in Libya or by the desperate messages from OPEC to sell their oil positions: “Crude is not gradually approaching its new equilibrium point at $60,” the American bank says.
“The situation in Libya could take months to resolve rather than weeks. We therefore recommend selling on a possible rebound towards $80 in Brent, as we expect a decline towards the $60 range in 2025 as a significant surplus appears in the market.“, they comment from Citi.
