The price of oil continues to break through its lowest levels of the year. The barrel of Brent, the benchmark in Europe, recorded a new session with declines of more than 3% which lead to Brent to trade below $70which has not happened since December 2021. The adjustment between supply and demand expected by market operators is being recalibrated towards an environment in which we produce more than we consume.
In fact, all European oil contracts sold by February 2031 are below $70, showing that Investors do not expect a price rebound at any time within the next seven years.
Obviously, market expectations can change at any time. What is clear is that today, there is nothing to lead the market to think that the supply will suffer enough to encourage prices or that there are countries like China whose activity requires more fuel than the current one. “Today, we produce much more oil than we consume and the imbalance is expected to worsen in the coming years,” commented the energy group Gunvor Group.
Oil returned to its old ways yesterday after data from the Asian giant revealed that oil Crude oil demand falls at an annual rate of 7%Weak demand in China has weighed on the crude oil market over the past two years, and consumption is expected to weaken in Europe and the United States as summer (the peak season for oil consumption) draws to a close and refineries move into maintenance mode, according to expectations reported by Bloomberg.
On the supply side, the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia (OPEC+), planned to finalize their planned production cuts in October to gradually reintroduce crude oil into the market. However, they recently changed their minds in an attempt to stop the price drop and this has so far not had the effect the oil cartel had hoped for.
In addition to the decline in contract prices on the market, experts’ expectations are reduced to the same extent. Companies such as Goldman Sachs or Morgan Stanley have revised their reference prices downwards recently and despite the cuts expected by OPEC+ beyond October. “The recent price trajectory has similarities with other periods of considerable weakness in demand and with recession-type winter accumulations“, commented Morgan Stanley.
Now there are companies that see the Brent even at $60 a barrel (another 13.5% drop). This is the case for investment banks like Citi, which estimate that these prices could be observed in 2025 if OPEC+ does not make more severe production cuts than those currently planned.
