Crude oil futures have reached their lowest levels of the year due to weak global demand and potential production increases by OPEC+. On September 4, November Brent crude fell by $4.91 per barrel to settle at $73.75, hitting a year-to-date low of $72.63. Meanwhile, West Texas Intermediate (WTI) also dropped to a year-to-date low of $69.19 per barrel.
According to StoneX analyst Fawad Razaqzada, “Recent data showing no increase in import demand from China, Europe, or North America indicates that the oil market might not be as tight as previously expected.”
OPEC+ has decided to delay easing its production cuts, which were initially set to start in October. Instead, the group plans to begin reducing output cuts in December, according to sources who spoke with Bloomberg.
Despite a brief spike in oil prices following the release of the EIA crude inventory data and OPEC+ news, prices quickly fell back. WTI crude dropped to $69.30 per barrel, and Brent fell to $72.70.
Ritterbusch analysts noted that OPEC+ faces a challenging situation, as its efforts to support oil prices are hindered by a loss of market share to non-OPEC producers. This ongoing revenue loss, coupled with lower prices, raises concerns about budgetary pressures for key OPEC producers.
Commodity analysts at Standard Chartered have observed that recent market trends are heavily influenced by algorithmic Commodity Trading Advisors (CTAs). These traders are currently more bearish on oil than at any previous cycle low, suggesting a potential for a short-covering rally. However, analysts warn that any significant price rally might prompt CTAs to sell short again.
Libya’s oil market is also under pressure, with reports indicating progress in resolving the current dispute. Sadiq al-Kabir, the former governor of the Libyan central bank, suggested that an agreement between Tripoli and Benghazi authorities is near. This could potentially bring around 700,000 barrels per day of Libyan crude back to the market. However, Standard Chartered believes the situation is more complex than suggested and that no substantial agreements have been made yet.
Looking ahead to Q4 2024, Standard Chartered projects a modest inventory draw of 0.5 million barrels per day, assuming OPEC+ continues with its planned cuts. The U.S. Energy Information Administration (EIA) and the International Energy Agency (IEA) also forecast similar draws. While these projections are not large, they represent a significant improvement compared to the inventory builds of Q4 2023.
Copper Prices Retreat from Record Highs
Copper prices have continued to decline from their May peak, closing below $9,000 per ton for the first time in two-and-a-half weeks. Weak sentiment in the copper market is driven by soft data from China and increasing inventories on the London Metal Exchange (LME). Although LME copper inventories have recently decreased, they remain near their highest levels since September 2019.
Conversely, copper inventories on the Shanghai Futures Exchange (SHFE) have been decreasing, marking their eighth consecutive weekly decline and reaching the lowest level since March 8.
Despite these challenges, some Wall Street analysts remain optimistic about copper. Jefferies predicts that while a U.S. recession could negatively impact demand, a subsequent recovery would likely drive prices higher due to limited supply. Jefferies forecasts that if the U.S. economy avoids a severe downturn and Chinese demand stabilizes, copper prices could average $4.40 per pound ($9,700 per ton) in 2024 and $4.83 per pound ($10,645 per ton) in 2025.