Crude oil prices slump on geopolitics and demand news
News of a demand downgrade for crude oil, and reports that Israel will avoid hitting Iranian oil facilities, prompted another big drop for oil prices.
Crude oil prices tumble amidst geopolitical easing and demand concerns
Crude oil prices took a dive following reports that Israel was willing to avoid targeting Iranian oil facilities in its retaliatory strike. This development effectively eliminated the geopolitical premium that had been supporting oil prices in recent weeks. The news came alongside other bearish factors, including disappointing Chinese consumer prices and OPEC's revised outlook on global oil demand.
Reports hint at a limited Israeli response to Iran
One key factor in supporting oil prices recently has been the possibility of an Israeli attack on Iran’s oil facilities, in response to Iran’s recent missile attacks. Oil prices had surged on fears that such an attack on Iran could lead to Iranian attacks on other producers in the region, or a closure of the Straits of Hormuz, through which around 17 million barrels of oil a day passes.
However, reports in the Washington Post indicate that Israel will instead only hit military targets, avoiding escalation for now. This reduces the chance of an Iranian response that could hit oil supply routes.
As a result, one powerful upward pressure on oil prices has been removed for the time being, though it is unlikely that these two adversaries will come to terms in the near future.
OPEC revises global oil demand forecasts downward
In its latest Monthly Oil Market Report (MOMR), OPEC has cut its oil demand growth estimates for the third consecutive month. The organisation now expects global oil demand to grow by 1.93 million barrels per day (bpd) in 2024, a reduction of 106,000 bpd compared to last month's assessment. This revision is largely based on actual consumption data and expectations of slightly lower demand in some regions.
Looking further ahead, OPEC has also slashed its forecast for global oil demand growth in 2025. The expected growth has been lowered by 102,000 bpd to 1.6 million bpd, with total global oil demand projected to average 105.8 million bpd next year.
China's slowdown: A key driver of reduced demand forecasts
The primary driver behind these downward revisions is weaker-than-expected Chinese oil demand growth. OPEC has reduced its projection for China's oil demand growth in 2024 to 580,000 bpd, down from the previous estimate of 650,000 bpd.
Several factors contribute to this decline in Chinese demand:
- Slower economic activity, particularly in the building and housing construction sectors
- Substitution of liquefied natural gas (LNG) for diesel fuel in heavy-duty trucks
- Overall subdued diesel consumption
Chinese oil imports reflect weakening demand
Recent data on Chinese energy imports further underscores the weakening demand. Crude oil shipments over the first nine months of the year dipped by 3%, according to Reuters. Additionally, imports were down by over 7% from August as refineries entered planned maintenance amid weak margins.
Global oil demand growth outlook for 2025
Despite the overall reduction in forecasts, OPEC still anticipates growth in global oil demand for 2025. Developing economies in Asia and the Middle East are expected to lead this growth, accounting for 1.5 million bpd of the projected 1.6 million bpd increase. Key contributors include China, Other Asia, the Middle East, and India.
In contrast, oil demand in developed economies is set to increase only marginally, by about 100,000 bpd, primarily led by the Americas.
IG client sentiment on oil prices
For WTI crude oil, which is by far the most popular oil market on the IG platform, clients remain long overall, at 71%. Interestingly, while the past 24 hours and the past week continue to see buying, the longer-term weekly view has seen 55% sells, as seen below:
IG client sentiment
WTI crude oil price – technical analysis
OPEC’s downgrading of its demand forecast and reports of Israel’s decision to opt for a more limited counterstrike against Iran have dealt a double blow to crude oil prices.
WTI, the most popular oil market with IG clients, has slumped to its lowest level since the beginning of October, giving back most of the gains made over the past two weeks. The downtrend appears to be back in place, reinforced by the drop back below trendline resistance from the July high.
The next target becomes trendline support from the September low, which may come into play around $69.50. If this is breached, then the September lows of $66.75 and then $65.10 come into view.
Buyers would need a recovery above $72.00 to suggest that a low has formed.
WTI chart
Conclusion: A shifting landscape for global oil markets
The recent revisions in OPEC's oil demand forecasts highlight the significant impact of China's economic slowdown on global oil markets. As the world's largest oil importer, changes in Chinese demand have far-reaching consequences for the entire industry. With geopolitical tensions easing and demand growth projections being revised downward, the oil market faces a period of adjustment and potential price pressures in the coming years.
While the situation in the Middle East is unlikely to change for now, the absence of any Israeli attack on Iran’s oil production facilities reduces the risk, for now, of any wider conflict and any throttling of global oil supplies.
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