Oil futures fell Last Friday more than 3%thus adding a new drop to Thursday’s day, when Brent and West Texas had already lost more than 1%. Added to these drops are the drops with which crude oil futures contracts are starting this Monday. What is happening on the oil market? The market could experience a potential (symbolic) “rail crash” caused by an increase in supply (OPEC opens the tap) and a drop in demand at the same time (China and the United States consume less), which generates a larger surplus than expected in the coming months and in 2025. Some OPEC countries can no longer “bear” the cuts, while the economic situation in China and the United States suggests a significant drop in demand in the coming quarters. Overall, Brent crude oil is once again flirting with the $76 zone (this Monday it starts with slight declines), which has become the technical support for crude oil throughout this year.
Everything indicates that inside According to the Organization of the Petroleum Exporting Countries (OPEC), several countries are refusing to maintain the cuts. and they want to start (yes or yes) putting hundreds of thousands of barrels of oil back on the market, a decision that will begin to be implemented in October of this year. On the other hand, the bad economic data coming from China reduces expectations for demand in an already affected market. All this leaves in the background the shutdown of oil production in Libya, which until a few weeks ago seemed the dominant force in the crude oil market.
All within OPEC and its allies appear ready to proceed with a planned increase in oil production from October, six sources from the producer group told Reuters. That would mean about 2.2 million barrels of crude per day could return to the market between the end of 2024 and all of 2025, and gradually so as not to create absolute price chaos.
The containment dam breaks
Several members of the cartel have lost faith in the cuts after months of losing market share and replacing a few more dollars for every barrel of crude sold. Eight OPEC+ members plan to increase output by 180,000 barrels per day (bpd) in October (OPEC’s dam break), as part of a plan to begin rolling back their latest round of 2.2 million bpd of output cuts, keeping official cuts in place through the end of 2025. “There are concerns that OPEC will go ahead and increase production from October,” said Tony Sycamore, a market analyst at IG. “However, I think the outcome will depend on the price of crude oil.”
On the other hand, “The bearish sentiment in the oil market continued early in the morning today.. Chinese PMI data released over the weekend raised fresh concerns about demand. China’s manufacturing PMI came in at 49.1 for August, below the consensus of 49.5 and also the fourth consecutive month of contraction in manufacturing activity,” ING’s note said.
“The weaker-than-expected Chinese PMI released over the weekend raised concerns that the Chinese economy is missing its growth targets,” Sycamore said. U.S. oil consumption also slowed in June to its lowest seasonal levels since the 2020 coronavirus pandemic, Energy Information Administration data showed Friday. “We expect growth to decline in 2025, driven by economic headwinds in China and the United States”ANZ analysts say in a note.
Brent and WTI have posted losses for two consecutive months as concerns over demand from the United States and China offset recent disruptions to Libyan oil supplies and tensions in the key Middle East producing region. the conflict between Israel and Gaza. Imagine that Libyan production resumes (which would not be out of the ordinary) and tensions in the Middle East ease. Oil could suffer a bigger decline. In that case, “we believe OPEC would have no choice but to delay the phase-out of voluntary production cuts if it wants higher prices.”
Supply disruptions in Libya continue, but only partially. While production has been reduced or nearly halted in several fields, it is being restored in others. “Three oil fields, including Sarir, Messla and Nafoura, are resuming production. It is unclear whether the resumption of operations in these fields indicates progress in negotiations between the governments of western and eastern Libya. However, there are suggestions that the restart of oil exploitation in these fields is to satisfy domestic demand rather than export,” ING experts explain in a note.
With these ingredients, Brent oil is close to yearly lows, trading slightly above $76. Losing this zone could trigger more selling pressure in the short term. Recall that at the beginning of July, oil was trading above $87, boosted by tensions in the Middle East and a slight market deficit (demand exceeded supply). Today, the situation seems to have changed once again and It’s the bass players who take controlLibya, whose production usually exceeds a million barrels per day, is managing to stem this hemorrhage of crude oil.
