Oil crashes to 33-month low after OPEC+ slashes demand forecasts, Brent sinks below $70 for first time since Dec 2021

International crude oil prices crashed to a 33-month low (near a three-year low) on Tuesday, September 10, with the benchmark Brent crude futures sinking below $70 a barrel for the first time since December 2021. This came shortly after the Organisation of Petroleum Exporting Countries and its allies (OPEC+) slashed its global oil demand forecast for this year and 2025.

Brent crude futures were last down $2.33, or 3.24 per cent, at $69.51 a barrel. US West Texas Intermediate crude lost $2.50, or 3.64 per cent, to $66.21. On Monday, both benchmarks had risen about one per cent. Back home, crude oil futures last traded 4.19 per cent lower at ₹5,534 per barrel on the multi-commodity exchange (MCX).

Also Read: OPEC+ to pause planned October oil output hike of 180,000 bpd for two months after Brent crashes to 14-month low

Crude oil near three-year low: What's weighing on prices?

-On Tuesday, OPEC said in its monthly report that the world oil demand will rise by 2.03 million barrels per day (bpd) in 2024, down from last month's forecast for growth of 2.11 million bpd. Until last month, OPEC had kept the forecast unchanged since it was first made in July 2023. OPEC also cut its 2025 global demand growth estimate to 1.74 million bpd from 1.78 million bpd.

-Oil prices dipped on weakening global demand prospects and expectations of oil oversupply with the Libya deal and group output. The bearish rut comes despite the OPEC alliance postponing its original plan to add 180,000 bpd next month as it gradually restarts output that has been halted since 2022 in a bid to shore up prices.
 

-On Monday, Chinese data showed consumer inflation accelerated in August to its fastest in half a year, though domestic demand remained fragile, and producer price deflation worsened. Data released on Tuesday showed China's exports grew in August at their fastest in nearly 1 1/2 years, yet imports disappointed, with domestic demand depressed.

-Analysts said OPEC cannot cut enough to offset the US and Brazilian positions and some other reservoirs at work. The US National Hurricane Center said tropical Storm Francine barrelled across the Gulf of Mexico and was on track to become a hurricane on Tuesday.

-Exxon Mobil, Shell and Chevron removed offshore staff and halted some oil and gas operations at facilities in the Gulf of Mexico. Exxon cut production at its Hoover oil facility about 150 miles east of Corpus Christi, Texas.

-Oil major Chevron withdrew workers from four offshore facilities and halted oil and gas output at two. Shell cut production at one platform, moved workers off three facilities and paused drilling at two. Analysts said the production shut-ins have failed to offset weak demand sentiment.

Also Read: Crude oil plunges on demand-supply imbalance in 2024, Brent down 20% in 12 months; OPEC+ in focus

OPEC output trend

-There is a wide split in 2024 demand growth forecasts due to differences over China and the pace of the world's transition to cleaner fuels. OPEC is still at the top of industry estimates and has a long way to go to match the International Energy Agency (IEA)'s far lower view.

-OPEC said this year's demand growth was still above the historical average of 1.4 million bpd seen prior to the COVID-19 pandemic in 2019, which caused a plunge in oil use. OPEC has implemented a series of output cuts since late 2022 to support the market, most of which are in place until the end of 2025.

-The report showed that actual production fell in August mainly due to unrest in Libya disrupting output. OPEC pumped 40.66 million bpd in August, down 304,000 bpd from July, led by a decline in Libya.

The OPEC report projects demand for OPEC crude, or crude from OPEC plus the allied countries working with it, at 43.8 million bpd in the fourth quarter, allowing the group to theoretically increase production.

-Other forecasts give less room for OPEC oil. The IEA, representing industrialised countries, sees much lower demand growth than OPEC of 970,000 bpd in 2024. The IEA is scheduled to update its figures on Thursday.

Also Read: OPEC+ has postponed a tough decision it can’t put off for long

Where are prices headed?

According to Pranav Mer, Vice President, EBG - Commodity & Currency Research, JM Financial Services Ltd, oil price continues to see high volatility but overall have remained under selling pressure amid further signs of a deteriorating global economic outlook leading to sluggish demand (especially from China). ‘’On charts... prices hold support at ₹5,800/ 5,720, while on the upside resistance is seen at ₹6,030/ 6,150,'' said Mer.

‘’According to the US EIA, the Gulf Coast accounts for 50 per cent of the country's refining capacity, and if the storm escalates into a hurricane, it could disrupt production temporarily. However, the strengthening dollar index and concerns over Chinese demand capped crude oil's gains. Crude oil has support at $67.50–67.00 and resistance at $68.70–69.40. In INR terms, support is at ₹5,710–5,650, with resistance at ₹5,850–5,910,'' said Rahul Kalantri, VP ofCommodities, Mehta Equities Ltd.