Oil prices steadied today, Friday, heading for weekly gains, amid mounting supply concerns over a Libyan production outage and Iraq’s plans to cut output. Meanwhile, data showed the US economy grew at a faster pace than initially expected, easing recession fears.
However, signs of weak demand, particularly in China, limited gains. Brent crude futures for October delivery, which expire on Friday, were down 7 cents, or 0.09%, at $79.87 a barrel by 1041 GMT. The more active November contract was up 5 cents, or 0.06%, at $78.87.
US West Texas Intermediate (WTI) crude futures were up 6 cents, or 0.08%, at $75.97. The two benchmarks had settled up more than $1 the previous day, up 1.1% and 1.6% respectively for the week so far.
An analyst noted that “oil prices are benefiting from US economic data that indicates a soft landing for the economy and no recession, which reduces demand concerns.”
On the other hand, the decline in Libyan exports and the expected possibility of a decline in Iraqi crude production in September are expected to contribute to the continued supply shortage in the oil market.
It is noteworthy that more than half of Libya’s oil production, which amounts to about 700,000 barrels per day, was stopped on Thursday, in addition to the suspension of exports at several ports after the escalation of conflicts between rival political factions. Rapidan Energy Group estimated production losses at about 900,000 to 1 million barrels per day, and these losses may continue for several weeks.
At the same time, Iraqi supplies are also expected to shrink after the country’s production exceeded its OPEC+ quota, as Iraq plans to reduce its oil production to between 3.85 million and 3.9 million barrels per day next month.
Oil price forecasts cut in 2024 on weak demand, high inventories
Analysts have cut their oil price forecasts for 2024, weighed down by weaker fuel demand from China, the world’s largest oil importer, as well as higher inventory levels as Saudi Arabia and its OPEC allies prepare to ease some production cuts starting in October. The poll of 37 analysts and economists in recent weeks showed the average Brent crude price for 2024 at $82.86 a barrel, a fourth straight cut, compared to July’s estimate of $83.66.
As for US crude, the poll forecasts an average price of $78.82 a barrel this year, slightly lower than last month’s estimate of $79.22. “Despite rising geopolitical tensions, oil prices have remained below $90 per barrel so far this year, with weak demand for crude from China and Europe offsetting the bullish impact of still-tight OPEC supplies,” the senior analyst explained.
Analysts expect global oil demand to grow by 1.0-1.3 million barrels per day (bpd) in 2024, compared with previous forecasts of 1-1.5 million bpd. OPEC also lowered its forecast for global oil demand growth in 2024, citing weaker-than-expected data for the first half of the year and lower demand expectations from China.
“This slowdown in consumption has led to a build in US inventories, which could add further downward pressure on prices,” a research director said.
“Floating stocks have been rising recently, and the announced production boost from the OPEC+ alliance is putting additional pressure on oil prices so far,” another analyst noted. Investors are also awaiting the release of the US core personal consumption expenditures price index on Friday, the Federal Reserve’s preferred gauge of inflation, which could provide clues about the size of the interest rate cut expected in September. Lower interest rates can boost economic growth and demand for oil.
Oil Price Forecast Mixed Amid OPEC+ Decisions
While data showed the US economy grew faster than initially estimated, easing recession fears and supporting oil prices, gains were limited by lingering concerns over demand. Analysts said the prolonged shutdown in Libya could give OPEC+ more breathing room to increase output in the fourth quarter of 2024, as currently planned. However, short-term disruptions make OPEC+’s decision on increasing supply more complicated. Under these circumstances, OPEC+ is likely to hesitate to add new supplies to the market amid ongoing concerns over demand.
Meanwhile, European gas prices edged lower yesterday, but remain elevated at 38 euros, a relatively high level given that inventories are 92% full. The brokerage noted that the market faces ongoing supply risks, keeping prices relatively supported. Scheduled maintenance in Norway has reduced daily gas flows to Europe by more than 10% since the start of August, raising concerns that this maintenance could be extended as the 2024/25 heating season approaches.
Analysts believe that the oil market is waiting for signals from OPEC+: If the group does not make an announcement on production plans, the eight OPEC+ members are expected to gradually start withdrawing their voluntary production cuts starting in October. However, the brokerage expects this decision to be postponed again, given the low prices and weak demand in China.
Earlier this month, OPEC+ confirmed its plan to start reducing its 2.2 million barrels per day of production cuts starting in October, but left open the option to suspend or reverse this increase if necessary. Goldman Sachs noted in a note this week that OPEC could raise production in the fourth quarter of this year as the market shifts from an OPEC-backed balance to a more stable one, focused on strategic discipline of non-OPEC supply and support for market cohesion.
