This week, both OPEC and the International Energy Agency (IEA) revised their oil demand forecasts higher, citing record Chinese consumption and resilient economies.
However, oil market participants focused on rising U.S. crude inventories, record U.S. oil production, weaker Chinese refinery and economic data, and the first decline in U.S. retail sales in seven months as negative sentiment persisted and dragged oil prices to four. -month low.
WTI slipped below $75 a barrel and the move down in Brent to well below $80 a barrel intensified speculation among analysts that Saudi Arabia could roll over its extra voluntary cut of 1 million barrels per day (bpd) early next year.
The Saudis and OPEC see the negative sentiment as “exaggerated” and the current concerns about the economy as “overblown.”
OPEC discharge dismissed negative market sentiment as overblown and said oil market fundamentals remain strong, with Chinese crude imports set to rise to a new annual record in 2023.
A few days earlier, the energy minister of OPEC’s top producer and the world’s largest crude exporter, Saudi Arabia, said that oil demand was still strong and blamed speculators for the drop in oil prices.
The IEA said in its monthly report this week that global oil consumption remained strong in September, with Chinese demand at a record high of 17.1 million bpd. Related: ExxonMobil vs. Google: Profits and perceptions explained
Due to an all-time high Chinese monthly demand and resilient consumption in the United States, the agency renovated its 2023 oil demand growth to 2.4 million bpd, higher than 2.3 million bpd growth expected in the October report.
This year, China is expected to account for 1.8 million bpd of the 2.4 million bpd growth, boosting total global demand to 102 million bpd, according to the IEA’s estimates.
But data on actual crude oil imports in China and the rest of Asia so far this year showed demand may be weaker than the IEA’s bullish forecasts, Reuters columnist Clyde Russell notes.
Demand growth in China is likely to be closer to the OPEC estimate of 1.14 million bpd this year, according to Russell’s estimates.
Concerns about Chinese demand and the US economy have dragged oil prices down since October, after a spike in the late summer after Saudi Arabia began its voluntary cut.
This week Chinese data showed refinery runs slow in October from a record crude throughput in September, as refining margins weakened and some independent refiners ran out of crude import quotas.
The real estate sector in China remains a concern as it holds back a true economic recovery.
The first US retail sales decline since March have added to concerns about consumer spending and economies, further weighing on market sentiment.
In addition, oil inventories from non-OPEC+ producers, led by the US, are higher than forecast, suggesting a market surplus early next year and making a stronger case for reversing the Saudi and Russian cuts to 2024.
“There are clearly concerns about demand going into next year, particularly around China, which OPEC has tried to ease this week, without success,” Craig Erlam, senior market analyst at OANDA, said Thursday after oil prices fell 5% in one day.
“The recent trend could make it difficult for Saudi Arabia and Russia to allow their unilateral cuts to expire at the end of the year, which could gradually price markets in,” Erlam added.
“The lack of a commitment to expand so far may reflect a desire not to, but as we’ve seen so often in the past, the producers will do whatever it takes to support the price .”
According to Ole Hansen, Head of Commodity Strategy at Saxo Bankthe short-term risk of additional weakness in oil prices “cannot be ruled out given continued selling pressure from momentum-focused funds, but traders may also consider the risk of additional action to support prices from OPEC and non-OPEC when on November 26.”
ING strategists Warren Patterson and Ewa Manthey wrote in a Friday note that “The price weakness we are seeing means that it is increasingly likely that the Saudis will roll over their additional voluntary cut of 1MMbbls/d early next year. Doing so should help wipe out the expected surplus and provide some support to the market.”
By Tsvetana Paraskova for Oilprice.com
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