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Crude oil futures extended the previous session’s sharp losses, with the U.S. benchmark slipping below $70/bbl for the first time this year, surrendering early gains following delegate comments that OPEC+ was considering a delay in plans to start unwinding production cuts.
Instead, lackluster data from the U.S. and China have reinforced fears about a weaker global economy and oil demand, helping set off a broader decline in world markets, and the prospect of OPEC and its allies returning barrels to the market amid weak demand only adds to worries.
Chinese data released over the weekend showed manufacturing activity sank to a six-month low in August, as growth in new home prices slowed, and U.S. data from the Institute for Supply Management pointed to a continued slowdown in manufacturing.
Meanwhile, Libya’s central bank governor reportedly said there are strong indications that political factions in the country are nearing an agreement, which would pave the way for more than 500K bbl/day of oil to return to the market.
Front-month Nymex crude (CL1:COM) for October delivery closed -1.6% to $69.20/bbl, its lowest settlement value since December 12, and front-month November Brent crude (CO1:COM) finished -1.4% to $72.70/bbl, its weakest settlement since June 2023.
Also, Nymex gasoline and heating oil prices ended at lowest since December 2021, with October gasoline (XB1:COM) -0.8% to $1.96/gal and October heating oil (HO1:COM) -2.2% to $2.16/gal.
Nymex front-month natural gas (NG1:COM) for October delivery settled -2.6% to $2.15/MMBtu.
ETFs: (NYSEARCA:USO), (BNO), (UCO), (SCO), (USL), (DBO), (DRIP), (GUSH), (USOI), (UGA), (UNG), (BOIL), (KOLD), (UNL), (FCG)
OPEC+ would need to extend their voluntary additional output cuts for longer to sustain a recovery in oil prices, and if it fails to do so, the average price of oil could drop to $60/bbl in 2025 due to reduced demand and increased supply from non-OPEC countries, Citi analysts said, according to Reuters.
“Although there could be a technical price rebound soon, if OPEC+ does not provide reassurance that current output cuts would be extended more indefinitely, then the market could lose faith in OPEC+ defending the $70/bbl level,” Citi said.
Geopolitical tensions were initially expected to boost oil prices, but each rebound since October 2023 has weakened, Citi said, adding the market has learned that tensions do not necessarily lead to reduced production or transit issues, making rallies an opportunity to sell.
In contrast, UBS sees Brent rising above $80/bbl over the coming months, saying the oil market remains undersupplied despite weak Chinese demand, and demand remains strong in other countries.
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