Despite a small increase on Friday, oil prices have fallen for a fourth consecutive week. While part of this decline can be attributed to a decrease in demand and an increase in supply, some factors appear to be more technical and short-term in nature. Although there is a possibility of prices rebounding in the coming weeks, recent economic data is not particularly promising for oil enthusiasts.
Filling Storage Tanks and Soft Demand
One contributing factor to the decline is the filling of storage tanks in Cushing, Oklahoma with unused crude oil. Additionally, the fall in Chinese refining margins indicates a decrease in demand from the world's largest oil importer.
Lowered Demand Forecasts
Both the International Energy Agency and the U.S. Energy Information Administration have been consistently lowering their global oil demand forecasts for 2024 over the past few months. The most recent forecast by the EIA predicts a surplus of 100,000 barrels per day in the oil market next year.
Potential Reversal in the Near Future
Despite the current challenges faced by the market, there are indications that some of these issues may reverse in the coming weeks.
Refinery Maintenance and Capacity
A significant reason for the buildup of crude oil in Cushing storage tanks is the seasonal maintenance being carried out by refineries. Presently, refinery capacity is relatively low. However, it is expected that several U.S. refineries will be operating at fuller capacity in the upcoming days.
As a result, these refineries will extract crude oil from storage to produce gasoline and diesel. Notably, diesel inventories in the U.S. are currently at five-year lows, suggesting that refineries can generate profits by increasing diesel production.
In conclusion, while oil prices continue to face downward pressure, there is potential for improvement in the near future. The easing of refinery maintenance and increased production of diesel could help alleviate some of the market's current challenges.
Oil Demand Remains Steady Despite Market Pressures
The latest statistics on oil demand have demonstrated resilience amidst market pressures. Notably, gasoline demand in the United States has been experiencing a steady increase in recent weeks, possibly due to falling prices. Additionally, several other countries have maintained strong levels of oil consumption.
According to an analysis by J.P. Morgan analyst Prateek Kedia, the data from various countries regarding their oil consumption statistics has yielded positive results. This overall trend in regional performance suggests a favorable outlook for oil demand.
While the current oil market reflects some downward pressure on prices, it may be driven more by market dynamics rather than fundamental factors. Pessimism among oil investors is contributing to this situation, resulting in a decline in prices. Citigroup analysts have observed that investors have doubled their short bets on oil compared to last year. Consequently, the overall sentiment among investors leans 14% more toward bearish than it did a year ago.
A potential catalyst for change could emerge later this month during the monthly meeting of OPEC and its allies. Prince Abdulaziz bin Salman, the Saudi oil minister, recently expressed his belief that speculators are responsible for the recent drop in prices. Countering prevailing opinions on weak oil demand, Prince Salman stated that the perception of weak demand is merely a deceptive maneuver.
As we move forward, it is crucial to recognize that oil demand remains robust despite the challenges faced by the market. The steady rise in gasoline consumption in the United States and the positive performance in various countries indicate a stronger than anticipated demand for oil.