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Understand the reasons behind the drop of more than 3% in the price of oil, which reached its lowest level since 2021, and the impact of this historic low on the global market
Oil prices fell more than 3% on Tuesday, hitting their lowest level since December 2021. The move reflects continued weakness in global demand, with the Organization of the Petroleum Exporting Countries (OPEC) revising downwards its demand growth forecasts for 2024 and 2025.
West Texas Intermediate (WTI) oil ended the day down around 4%, at US$65,75 per barrel, while Brent closed at US$69,19, both showing significant declines.
The main reason for the fall in oil prices is related to demand, especially with the slowdown Valuation in key markets such as China.
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The Asian country, which has faced difficulties economical, including a crisis in the real estate sector, has reduced its oil consumption, opting for cheaper and more sustainable alternatives, such as natural gas. This has put continued pressure on the price of oil.
OPEC demand review, affecting oil price
In its monthly report, OPEC revised downward its expectations for global oil demand growth, now forecasting an increase of around 2,0 million barrels per day in 2024, a reduction of 80 barrels from the previous projection.
The outlook for 2025 has also been slightly reduced. Lower demand, especially for diesel, has been driven by slowdowns in sectors such as manufacturing, construction and trucking. In addition, the increasing adoption of liquefied natural gas (LNG)-powered trucks has further reduced demand for diesel.
Although OPEC still maintains more optimistic growth expectations than other industry bodies, such as the International Energy Agency (IEA) and the US Energy Information Administration (EIA), market analysts have been skeptical about these forecasts.
"OPEC+ has simply been too optimistic in its demand growth forecasts”, said Andy Lipow, president of Lipow Oil Associates. According to him, OPEC’s recent review is a reflection of the current dynamics between supply and demand, which remain challenging.
Global impact
The fall in oil prices reflects not only the situation in China, but also signs of economic distress in other regions, such as the United States and Europe. In the West, the end of the summer travel season has contributed to a decrease in fuel demand, further pushing up oil prices. In addition, the prospect of slower economic growth in these regions has also contributed to reduced consumption expectations.
Last week, OPEC+ decided to postpone the reversal of some voluntary production cuts originally scheduled for October. This means that despite the drop in demand, oil supply will not increase in the short term, which could limit further price declines.
Even with demand slowing and prices falling, the EIA predicts that the price of Brent crude could rise again. It projects Brent to average $82 per barrel in the fourth quarter of 2024 and $84 per barrel in 2025. This forecast is based on the expectation that OPEC+ production cuts will keep supply below global consumption.
Impact on fuel prices
In the United States, falling oil prices have also helped reduce gasoline prices. According to analysts, the national average for fuel prices could fall to around $3 per gallon by the end of the year.
The relief for consumers comes at a time of uncertainty regarding the impact of Tropical Storm Francine, which is heading toward Texas and Louisiana. Despite possible increased winds, the storm is expected to have minimal impact on oil prices and gasoline supplies.
With the drop in oil prices, the market has already erased all of the gains accumulated over the year. WTI, for example, is expected to fall by around 5% in 2024, while Brent has fallen by approximately 8%. The expectation is that, with global demand still weak and economic uncertainty persisting, the price of oil will remain under pressure in the coming months.
Oil price volatility remains a concern for global economies, particularly in countries dependent on energy exports. The balance between supply and demand, along with geopolitical issues and energy transitions, is likely to dictate the pace of future market movements.
