On Tuesday, oil prices resumed their downward trend, dropping more than 3% after OPEC, the oil alliance, reduced its demand growth forecast for 2024 and 2025.
West Texas Intermediate (CL=F) fell approximately 4% to end the day at $65.75 per barrel, while Brent (BZ=F) decreased more than 3%, closing at $69.19 per barrel. This marks the lowest level for Brent since December 2021.
In its monthly report, OPEC projected that oil demand growth in 2024 would increase by about 2.0 million barrels per day, a decrease of 80,000 barrels from its previous estimate. The alliance also slightly adjusted its forecast for growth in 2025.
The downward revision was significantly influenced by China, which has been experiencing economic challenges due to a housing crisis and has increasingly shifted towards natural gas—a less expensive and cleaner alternative—as part of its energy transition.
The report highlighted that diesel demand has been weakened by low manufacturing, construction, and trucking activity, alongside the growing use of LNG (liquefied natural gas) trucks, which has further reduced the need for transportation diesel.
Despite the revision, OPEC’s demand growth expectations remain higher compared to other industry estimates.
“OPEC+ has simply been overly optimistic with their demand growth forecasts, which are nearly double the estimates from the EIA or IEA,” said Andy Lipow, president of Lipow Oil Associates.
He added that the adjustment in forecasts is merely an acknowledgment of the current supply and demand dynamics.
Wall Street analysts have become more pessimistic about crude oil, lowering their price targets partly due to weak demand from China.
Additionally, signs of economic slowdowns in the US and Europe, combined with the winding down of the summer driving season, have also impacted prices.
Last week, OPEC+ decided to delay the unwinding of some of its voluntary production cuts that were originally planned for October.
The US Energy Information Administration, in its monthly outlook, forecasted that Brent prices would rise due to reduced global production from OPEC+ cuts, expecting the Brent crude oil spot price to average $82 per barrel in the fourth quarter of 2024 and $84 per barrel in 2025.
The recent decline in oil prices has contributed to a drop in gas prices in the US, with at least one analyst predicting that the national average could fall to $3 per gallon by the end of the year, or even sooner.
On Monday, traders were also evaluating the potential impact of Tropical Storm Francine’s movement toward Texas and Louisiana on oil and gas prices.
