Why Oil Prices Are Expected to Fall

Rising Oil Prices Amidst Global Demand Uncertainty

Oil prices are on the rise, driven by tensions in the Middle East and the averted risk of recession in the United States (at least for now).
However, analysts and strategists are betting on a decrease in crude oil prices due to one main reason: weakened global fuel demand not keeping pace with oil supply.

In the coming months, the scale seems tipped towards an imbalance as OPEC plans to increase oil production in the fall following the strategy of cuts.
According to data, analysts, and industry sources, global oil demand will need to accelerate in the next few months; otherwise, the market will struggle to absorb the increase in oil supply that the cartel plans to implement starting in October.

Factors Influencing Oil Price Trends

The imbalance towards greater supply could, however, translate into good news for consumers, with lower oil prices leading to a decrease in inflation.
The growth in oil demand in the first seven months of the year by major consumers, the United States, and China, has failed to meet expectations, even before renewed fears of a US recession triggered a global sell-off of stocks and bonds this week.

If the economy slows down further, oil demand is likely to see a setback in its recovery.
This would mean that OPEC+ will have to postpone plans to pump more oil or accept lower prices for increased supply, as analysts have pointed out.

The Global Demand Dynamics

Prices fell below $80 per barrel in August, a figure lower than what most cartel members and their allies, like Russia, require to balance their budgets.
The global oil demand presents a significant downside risk, especially with concerns surrounding the Chinese and US economies.

It’s challenging to envision significant price increases if demand is slower than anticipated,” noted Neil Atkinson, an independent analyst, emphasizing that he expected OPEC+ to pause the production increase.
The uncertainty of whether global demand will reach the necessary levels to absorb additional supplies this year remains a daunting task.
There are too many unknowns surrounding global growth.

Focus on China and the United States

The International Energy Agency states that slower economic growth and the shift to electric vehicles in China have altered the paradigm of the world’s second-largest economy, which has been leading the global increase in oil consumption for years.

Initial indications from China’s crude oil imports in August, as provided by data intelligence company Kpler, show a slight rebound from July.
On the other hand, the plummet in diesel consumption in China, due to the increasing use of LNG-powered trucks, is impacting domestic fuel demand, along with economic weaknesses.

In the United States, oil consumption increased by 220,000 bpd year-over-year, averaging 20.25 million bpd by July.
The demand will need to pick up to reach the government’s forecast for 2024 of 20.5 million bpd.

The main uncertainty for oil prices lies in global demand rather than concerns about supply.
With prices too low, OPEC might intervene with further cuts to stabilize the market.