Oil prices fall below $70 for first time since 2021 on growing demand concerns

Oil prices recovered some losses on Wednesday after a 4 per cent drop the day before that pushed prices below $70 for the first time in more than two years, as Opec reduced its forecast for global oil demand growth.

Brent, the benchmark for two thirds of the world’s oil, was trading 1.49 per cent higher at $70.22 a barrel at 12.46pm UAE time, while West Texas Intermediate, the gauge that tracks US crude, was up 1.67 per cent at $66.85 a barrel.

On Tuesday, Brent settled 3.69 per cent lower at $69.19 a barrel, its lowest level since December 2021. WTI closed down 4.31 per cent at $65.75 a barrel.

The producer alliance on Tuesday lowered its oil demand growth forecast for 2024 and 2025 for the second consecutive month amid signs of slowing consumption in major economies.

Global oil demand growth forecast for this year is now projected to reach 2 million bpd, down 80,000 bpd from the group’s previous estimate, Opec said in its monthly oil market report.

For 2025, Opec cut its forecast to 1.74 million bpd, down from a previous estimate of 1.78 million bpd.

“The tone of the oil markets remains downbeat,” said Norbert Rucker, head of economics and next generation research at Julius Baer.

“The fundamental headwinds should persist. Demand is partially stagnant, production grows in the Americas, and the oil market likely heads into surplus supplies next year.”

The US Energy Information Administration expects Brent crude to rise above $80 a barrel this month and average $82 a barrel in the fourth quarter of this year.

Global oil reserves will begin to decline as Opec+ production cuts result in oil consumption exceeding supply, the EIA said in its short-term energy outlook on Tuesday.

The Department of Energy's statistics division forecasts global oil production to reach 102.47 million bpd in the last quarter of this year, while consumption is expected to be 103.72 million bpd.

Last week, Opec+ member countries announced that they would be delaying production increases until December. Those increases were initially set to begin next month.

“We expect that oil prices will be pushed upwards in the coming weeks and months as global oil consumption outpaces production,” said EIA administrator Joe DeCarolis.

“There are uncertainties in the market, including demand growth in China and supply disruptions in the Middle East, that could push prices higher or lower in the short term.”

China, the world’s second-largest economy and top crude importer, faces challenges from a property crisis, sluggish consumer spending and a slowdown in manufacturing.

The country's consumer inflation in August rose at its quickest rate in six months, driven more by increased food costs due to weather disruptions than by a rebound in domestic demand, while deflation in producer prices deepened.

China's consumer price index increased by 0.6 per cent last month compared to the previous year, up from a 0.5 per cent rise in July, data from the National Bureau of Statistics showed on Monday.

China's second-quarter gross domestic product growth slowed to 4.7 per cent on an annual basis, from 5.3 per cent in the first quarter.

“Real-time indicators in China paint a relatively bearish picture. While the aviation activity index remains above last year’s levels, sluggish road transport is more concerning,” said Claudio Galimberti, global market analysis director at Rystad Energy.

“As road transport represents a bit less than 30 per cent of China’s oil demand, this slowdown is having a substantial impact on overall China’s demand.”

Investors will keep a close eye on US economic data this week.

The CPI is set for release later today, followed by the US Monthly Federal Budget and Producer Price Index on Thursday.

The Federal Reserve will factor in those figures when deciding on interest rates at its meeting on September 17-18.

“A quarter-point cut may have a limited effect on boosting oil prices, while a more significant cut could weaken the US dollar, supporting demand but potentially strengthening recessionary fears,” Mr Galimberti said.

The Fed has maintained the benchmark borrowing rate at 5.25 per cent to 5.50 per cent since July last year, after an aggressive rate-increase strategy that began in 2022 to address a surge in inflation caused by Russia's invasion of Ukraine.