Brent oil has fallen to $69 per barrel, its lowest point in nine months, as concerns over China's weak demand continue to unsettle the markets. Despite production cuts and supply-side disruptions, demand uncertainty from China has tipped the balance, putting further pressure on oil prices. In this article, we dive into what’s driving the decline and how upcoming data could shape market sentiment for traders.Brent oil has experienced a sharp decline, dropping over 10% in the past week and a half, and is now trading at $69 per barrel as markets open on Monday. This marks a significant fall from its earlier level of $73, bringing it closer to its 9-month low.
While much of the media has focused on supply-side factors such as production outages and potential supply increases, the true driving force behind this decline appears to be weakening demand, particularly from China. As noted by Commerzbank commodity strategist Barbara Lambrecht, despite reports of supply disruptions, oil prices have struggled to rise, reflecting deeper concerns about global demand.
Focus on Chinese Demand
China, the world’s second-largest oil consumer, has disappointed the markets in recent months. Its lackluster demand has contributed to the current imbalance in the oil market. The spotlight will be on China's crude oil import data, expected to be released tomorrow as part of its foreign trade report. Should there be an unexpectedly strong demand from China, we could see a potential recovery in oil prices. However, if the numbers remain underwhelming, Brent may continue to face downward pressure.
Energy Agency Reports Expected This Week
Also adding to market anticipation, the US Energy Information Administration (EIA) is scheduled to release its new monthly outlook on Tuesday. The agency previously maintained a relatively optimistic forecast for 2024, projecting a 1% demand growth for 2025, despite a more pessimistic view for next year. Any positive revisions in these forecasts could offer some support to oil prices, especially if US oil production expectations are lowered.
In contrast, last month's disappointing figures from the International Energy Agency (IEA) and potential downgrades to China's demand forecast could cast a shadow over any potential recovery. However, with OPEC+ recently delaying their production increases by two months and Iraq and Kazakhstan being forced to curb their output, the oil market may find some stability in the fourth quarter. This could prevent a buildup in OECD oil inventories and help support prices at current levels.
Outlook for Brent
The decline to $69 represents a critical juncture for Brent oil. Should demand, particularly from China, remain weak, we may see further downside. However, supportive actions from OPEC+ and a balanced oil market outlook for the fourth quarter could provide some much-needed price stabilization.
