Oil prices edged lower on Tuesday, snapping a five-day winning streak as markets shifted focus back to demand concerns following OPEC’s downward revision of its 2024 demand growth forecast, primarily due to weaker expectations in China.
Global benchmark Brent crude futures dropped by 78 cents, or 0.95%, to $81.52 a barrel at 0330 GMT, while US West Texas Intermediate (WTI) crude futures fell by 73 cents, or 0.91%, to $79.33 a barrel. This decline follows significant gains on Monday, where Brent surged by more than 3% and WTI rose over 4%.
OPEC’s decision to lower its global demand forecast for 2024 underscores the challenges facing the OPEC+ group as they contemplate increasing production from October. This marks the first reduction in OPEC’s 2024 forecast since July 2023, driven by signs of weakening demand in China, particularly due to slumping diesel consumption and a deepening crisis in the property sector.
Market strategist Yeap Jun Rong from IG highlighted that concerns over crude oil demand remain prevalent, especially with the upcoming US inflation data on the horizon. He noted that increased economic risks could further weigh on oil prices, particularly as OPEC+ plans to roll back production cuts, potentially leading to a less tight oil market.
Despite these concerns, investors are also keeping a close eye on escalating geopolitical tensions in the Middle East. The US is reportedly preparing for potential significant attacks by Iran or its proxies in the region, which could tighten global crude supplies and push prices higher. Analysts have warned that such an escalation could lead to US embargoes on Iranian crude exports, potentially affecting 1.5 million barrels per day of supply.
In addition to geopolitical risks, markets are bracing for Wednesday’s US consumer price index (CPI) report, which is expected to provide key insights into inflation. Investors are concerned that a weaker-than-expected CPI could heighten fears of an economic downturn. Money markets are currently split on whether the US Federal Reserve will implement a 25- or 50-basis-point interest rate cut in September, with expectations of a total easing of 100 bps by the end of 2024. Rate cuts typically boost economic activity, increasing demand for energy sources like oil.
