Oil prices fell on Tuesday 13/08, snapping a five-day winning streak, as markets refocused on demand concerns after OPEC cut its 2024 demand growth forecast on Monday 12/08 due to softer expectations in China.
Global benchmark Brent crude futures fell 57 cents, or 0.7 per cent, to $81.73 a barrel at 06:30 GMT. US West Texas Intermediate crude futures fell to $79.58 per barrel, down 48 cents, or 0.6 per cent.
Brent had gained more than 3% on Monday 12 August, while US oil futures had risen more than 4%.
The reduction in the Organisation of the Petroleum Exporting Countries’ (OPEC) global demand forecast for 2024 highlighted the dilemma faced by the OPEC+ group in increasing production from October.
The cut in OPEC’s forecast for 2024 was the first since it was made in July 2023, and comes after growing signs that demand in China has fallen short of expectations due to falling diesel consumption and the crisis in the property sector hurting the world’s second largest economy.
“Concerns about crude oil demand remain on the table,” Yeap Jun Rong, market strategist at IG, told Reuters, adding that reservations persisted ahead of upcoming US inflation data.
“Any reflection of higher economic risks could weigh on oil prices at a time when OPEC+ has cut its demand forecast for 2024 and is expected to reverse its production cuts from October, which could point to a less tight oil market,” Yeap said.
But he added that investors are still paying attention to the latest geopolitical tensions.
The conflict in the Middle East has escalated, with the US preparing for what could be significant attacks by Iran or its proxies in the region as early as this week, White House national security spokesman John Kirby said on Monday 12 August.
Reuters understands that any attack could restrict access to world crude supplies and increase prices. An attack could also lead the United States to place embargoes on Iranian crude exports, potentially affecting 1.5 million barrels a day of supply, according to analysts.
The markets are also preparing for Wednesday’s report on the US consumer price index, which will give a crucial reading on inflation, with investors now worried that an excessively depressed CPI figure could fuel fears of a recession.
According to Reuters, money markets were even betting on a 25 or 50 basis point cut in US interest rates in September, expecting a total easing of 100 basis points by the end of 2024, according to the CME’s FedWatch tool.
Rate cuts tend to increase economic activity, which increases the use of energy sources such as oil.
