WTI crude oil prices have fallen 11% from their local highs in just five sessions, reaching around US$84 per barrel. Is this a sign of a break in the uptrend that had been in place since June this year? Let's take a look at the data and consider whether there should be a shortage of this commodity in the market.
OPEC+ permanently stands by cuts
The OPEC cartel, along with Russia and other oil producers, decided to maintain the current level of oil production cuts at Wednesday's meeting. However, looking at the monthly global demand forecasts contained in OPEC reports, there is no sign of a slowdown at present. At the current level of global oil production of 101.12 million barrels per day, shortages could reach around 2% by the end of this year and up to 4.2% of demand by the end of next year. It is worth comparing these projections with the pandemic crisis period in 2020, when excess production was 3% over then demand, resulting in negative and lowest prices in the history of oil contracts. It is also worth comparing this to last year, when there were virtually no shortages in the market, despite the oil shock causing the price of oil to rise above the US$120 per barrel level.
Because OPEC has only started to include forecasts for next year in its reports since July this year, the graph is only partially incomplete.
Source: OPEC data, Conotoxia analysts' study
This suggests a continuation of the trend despite the current declines, and it may only be a matter of time before the $100 per barrel level is exceeded under current conditions. Nevertheless, we must always remember that this is one of the most controlled markets in the world, where decisions do not always have to be made purely for economic gain. Nevertheless, high oil prices are beneficial for producers, especially in a market where demand is relatively inelastic.
How much does the situation in the United States affect the oil market?
Although the latest reports on changes in US oil inventories showed a larger decline than expected, there is still no historical relationship between changes in inventories and the price of oil, as we have written about before. Currently, the US is the world's largest oil consumer, accounting for as much as 20.4% of global demand. China is second, with a share of 15.1%, and the European Union is third with a share of 13.7%. Together, these three economic areas account for just under half of global oil consumption, so forecasts of their future demand are crucial.
Several indicators may have contributed to the current discount. These include US GDP at 2.1%, which confirmed the expected economic slowdown. In addition, Fed Chairman Jerome Powell's message of keeping interest rates high for an extended period of time could limit the growth potential of the US economy in the long term.
If one looks closely at the current projections in the OPEC report, one can see that no significant changes in demand volumes are expected in any of these economic areas. Of course, these figures are subject to revision and the latest information will be released on 12 October.
Source: OPEC data, Conotoxia analysts' study
Źródło: Conotoxia MT5, XTIUSD, Daily
Grzegorz Dróżdż, CAI MPW, Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 72.95% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Trade this news from Conotoxia Ltd. platforms
Go to your account
