The first week of September 2024 was marked by steep declines in global oil prices, driven by a combination of geopolitical developments, disappointing economic data, and shifting market expectations regarding future supply. This recap highlights the key events that impacted oil markets from September 2nd to 6th, with prices hitting yearly lows by the end of the week.
Price Movements
Brent Crude & WTI Performance:
- Brent Crude: Brent started the week at $76.95 per barrel and fell steadily, closing at $71.06 on Friday, a 7.65% decline for the week. From Jan 2024, Brent has dropped 8.18%.
- West Texas Intermediate (WTI): WTI began the week at $73.53 per barrel, and by Friday, had fallen to $67.67, marking a 7.97% decrease for the week. From the start of 2024 to date, WTI has declined 5.13%.
- Weekly Summary: Both Brent and WTI experienced their steepest weekly declines since October 2023, amid concerns about oversupply and weakening demand.
Key Market Drivers
Libya’s Oil Production Recovery:
- Early in the week, news surfaced that Libya’s rival governments were nearing a deal to restore oil production, which had been disrupted by up to 700,000 barrels per day. This development eased concerns about prolonged supply disruptions, putting downward pressure on prices. By midweek, prices continued to decline as the market anticipated Libya’s production to return to normal levels.
OPEC+ Delays Production Increase:
- Initially, OPEC+ had planned to raise output by 180,000 barrels per day in October. However, in response to the sharp sell-off in oil futures, the group postponed the production increase until December. Despite this delay, the market was not reassured, as expectations of oversupply persisted.
- Analysts highlighted that OPEC+ members need higher Brent prices—around $85 to $90 per barrel—to balance their budgets. Still, fears of weaker global demand, particularly from China, continued to weigh heavily on market sentiment.
Weak Economic Data from China and the U.S.:
- China, the world’s largest oil importer, reported a decline in manufacturing activity, with the August PMI falling to 49.1, down from 49.4 in the previous month, signalling contraction for the fourth consecutive month. Additionally, U.S. manufacturing data also disappointed at 47.2, further reinforcing the market’s concerns about weakening global demand.
- The shift from gasoline to electric vehicles (EVs) in China was also cited as a factor reducing oil demand, contributing to the bearish outlook.
Inventory Data
U.S. Crude Oil Inventories:
- On Thursday, the U.S. Energy Information Administration (EIA) reported a 6.9-million-barrel decline in U.S. crude oil inventories for the week ending August 30th, providing some support to prices. However, gasoline stocks rose by 800,000 barrels, signalling a slowdown in gasoline demand.
Market Sentiment and Speculation
Steep Sell-Off Amid Oversupply Concerns:
- The market’s overall sentiment was bearish, with traders reacting to oversupply fears, particularly considering the planned OPEC+ production increases and weaker than expected demand in major economies. The steep decline in prices wiped out all gains for the year, with WTI hitting its lowest level since June 2023.
- Despite the bearish outlook, some analysts remained optimistic. Joshua Young of Bison Interests suggested that concerns about China’s demand were overstated, pointing to potential “green shoots” that could reverse the negative trend.
Week Ahead
Supply and Demand Imbalance to Continue:
- Analysts remain cautious about the near-term outlook for oil prices. Bank of America has revised its oil price forecasts for 2025, lowering Brent’s estimate to $75 per barrel (down from $80) and WTI to $71 per barrel (down from $75). Citi also expects Brent prices to average in the $60 range next year as the market enters a surplus.
- OPEC+ has delayed its planned production hike until December, but questions remain about whether further supply adjustments will be needed to stabilize the market.
Conclusion
The week of September 2nd to 6th, 2024, showed significant losses in both Brent and WTI as the oil market struggled to find a balance between supply and demand. Weak economic data, concerns about China’s oil demand, and uncertainties surrounding Libya and OPEC+ weighed heavily on prices, leading to the sharpest weekly declines in nearly a year. The outlook remains uncertain as the market heads into a period of reduced seasonal demand and potential oversupply.