In a recent update on Saxo Bank’s website, Ole Hansen, the Head of Commodity Strategy, discussed the current state of the oil market. Hansen noted that the Brent crude oil futures contract is currently testing key support around $75 per barrel. He warned that if the price falls below this level, it could trigger additional selling pressure and push the price down to the next significant support level near $71.
At the time of Hansen’s initial report, Brent crude was trading around $76 per barrel. Hansen’s update also pointed out that both Brent and WTI crude oil futures had fallen further, putting pressure on crucial support levels.
The decline in oil prices is partly due to recent developments in Libya. Hansen explained that Sadiq Al-Kabir, the governor of the Libyan central bank, has indicated that political factions in the country might soon reach an agreement. This potential resolution could lead to a resumption of oil production, which has been disrupted due to ongoing political struggles.
Hansen also highlighted that the overall market sentiment remains weak. He attributed this to China’s economic slowdown, marked by a contraction in factory activity and a deepening property crisis. Additionally, the growing adoption of electric vehicles (EVs) and hybrid cars is reducing fuel demand. This decrease in demand has led to lower refinery activity and overall oil demand. Hansen noted that refinery margins, which drive crude demand, are currently weak in both Europe and the USA, with New York ULSD (Diesel) and London ICE gas oil trading at their lowest levels in over a year.
Despite significant disruptions in Libya, where oil production has dropped by up to one million barrels per day in the past week, prices have not improved. Hansen pointed out that this reflects the current weak market sentiment, which threatens to break key support levels for Brent and WTI crude oil.
George Khoury, Global Head of Education and Research at CFI, echoed these concerns in a market analysis sent to Rigzone. Khoury noted that China’s financial struggles, highlighted by disappointing PMI data and slow growth in export orders and home prices, continue to pressure crude prices. In Libya, political tensions have caused major disruptions in oil production and exports, with the National Oil Corp declaring force majeure due to conflicts over the central bank and oil revenue.
Khoury also mentioned that OPEC+ plans to increase production by some members by 180,000 barrels per day in October might help address some supply issues. He advised that the market will be closely watching the U.S. Manufacturing PMI report scheduled for later today. A positive report could signal increased industrial activity and energy demand, potentially supporting crude prices in the short term. Conversely, continued weakness could put additional pressure on oil prices due to reduced demand.
In an exclusive interview with Rigzone, Diana Furchtgott-Roth, Director of the Center for Energy, Climate, and Environment at the Heritage Foundation, emphasized that oil prices are influenced by expectations of future demand. She noted that recent data showing slower chip growth and a fifth consecutive month of contraction in the ISM manufacturing index could suggest lower global demand and thus lower oil prices.
However, Furchtgott-Roth cautioned against overemphasizing day-to-day price fluctuations. She pointed out that the ISM data represents a small and unweighted sample, with smaller firms having as much influence as larger ones. Positive retail sales and strong consumer spending in the U.S. continue to support the economy.
Looking ahead, Furchtgott-Roth highlighted the importance of future policies on oil production and pipeline approvals. She noted that the presidential candidates have differing policies that could significantly impact the oil industry.