Oil Prices Under Pressure as Weak China Demand, Rising Inventories Weigh on Market

Oil prices are facing downward pressure as analysts cut their 2024 forecasts due to weaker-than-expected fuel demand from China and rising inventory levels. The revised outlook comes amid anticipated changes from Saudi Arabia and OPEC+ allies, who are set to ease some of their production cuts starting in October.

A recent Reuters poll of 37 analysts and economists indicates that Brent crude is now expected to average $82.86 per barrel next year, marking the fourth consecutive reduction in estimates, while U.S. crude is projected to average $78.82 per barrel for 2024.

“Despite heightened geopolitical tensions, oil prices have remained below $90 per barrel this year,” said Florian Grunberger, a senior analyst at data and analytics firm Kpler. “Weak crude intake from China and Europe has counterbalanced the bullish impact of continued OPEC supply restrictions.”

Analysts expect global oil demand to grow by 1.0 to 1.3 million barrels per day (mbpd) in 2024, a slight decrease from the 1.0 to 1.5 mbpd growth projected in the previous poll. The Organisation of the Petroleum Exporting Countries (OPEC) has also lowered its forecast for global oil demand growth in 2024, pointing to weaker-than-expected data for the first half of the year and reduced demand expectations from China.

“The slowdown in consumption has led to a rise in inventory levels in the U.S., which could further exert downward pressure on prices,” noted Sehul Bhatt, Director of Research at CRISIL Market Intelligence and Analytics.

While ongoing conflicts in the Middle East and the Russia-Ukraine war have created geopolitical tensions, analysts note that the risk premium on oil prices has diminished due to the lack of significant disruptions to oil supply.

However, a potential escalation of the Israel-Hamas conflict, combined with sustained supply outages, such as those seen in Libya, could push oil prices above the $90 per barrel mark, according to Grunberger from Kpler.

“Recent increases in floating storage levels and the announcement of production hikes by the OPEC+ alliance have weighed on oil prices,” said Thomas Wybierek, an analyst at NORD/LB.

Earlier this month, OPEC+ confirmed plans to begin unwinding a portion of its current production cuts, totalling 2.2 million bpd, starting in October. The group reiterated, however, that it could pause or reverse the increase in supply if market conditions warranted such actions.

“We still anticipate that OPEC will increase production in the fourth quarter,” Goldman Sachs said in a note this week. “The market may be shifting from a scenario where OPEC stabilises spot prices and limits volatility to a more long-term approach focused on strategically managing non-OPEC supply and maintaining group cohesion.”

These developments underscore the complex interplay of global demand, geopolitical tensions, and OPEC+ strategy in shaping the future of oil markets. As the industry navigates these challenges, market participants will be closely monitoring both supply-side adjustments and demand trends, particularly in key markets like China.

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