Oil prices showed some recovery on Wednesday after hitting their lowest point in nearly three years. This comes as traders assess growing concerns of oversupply in the market, with Brent crude rising by 1.50% to trade above $70 a barrel. This followed a dip to $68.68 on Tuesday, marking the lowest intraday price since December 2021. Meanwhile, West Texas Intermediate (WTI) crude gained 1.67%, reaching $66.85 per barrel.
CONCERNS OVER GLOBAL SUPPLY AND DEMAND
The global oil market continues to face challenges, as the oil prices decline is fueled by worries over slowing economic growth in major consumer markets like the US and China. Despite robust supplies, oil demand is expected to weaken, which has led to Brent crude falling by over 9% in 2024 alone.
FUTURES MARKET SIGNALS BEARISH OUTLOOK
Market indicators suggest that oil prices could remain under pressure. The futures curve, a key metric, points to a less constrained supply, with some parts of the curve dipping into a bearish contango, where future oil prices are lower than current prices. Brent’s slight recovery on Wednesday was supported by data from the American Petroleum Institute showing a reduction in US stockpiles by 2.8 million barrels.
OPEC+ POSTPONES PRODUCTION HIKE
In response to oil prices weakening, OPEC+ has delayed a planned output hike. There are concerns that the organization could bring additional barrels to the market by 2025, contributing to an oversupply situation. The International Energy Agency (IEA) has also raised concerns, projecting higher oil inventories next year if the production increase isn’t curbed.
CENTRAL BANKERS WELCOME LOWER OIL PRICES
For central banks, the dip in oil prices could provide relief in their efforts to manage inflation. The Federal Reserve is anticipated to lower interest rates soon, given cooling price pressures and signs of a softening job market. Lower oil prices will also benefit countries heavily dependent on crude imports, such as China and Japan.
HURRICANE FRANCINE THREATENS US GULF OIL PRODUCTION
As oil prices recover, traders are keeping an eye on Hurricane Francine, which is set to hit Louisiana. Companies such as Chevron and Shell have already taken precautionary steps, with federal reports indicating nearly a quarter of Gulf of Mexico crude production has been shut in. The storm’s path also threatens eight refineries, potentially disrupting oil output further.
OUTLOOK REMAINS BEARISH AMONG TRADERS AND ANALYSTS
Despite the recent rise in oil prices, market sentiment remains largely bearish. Executives at the Asia Pacific Petroleum Conference in Singapore have shared pessimistic views on crude’s future, with Goldman Sachs predicting a market glut by November or December.
