Oil Prices Rangebound on Fewer Surprises Traders Encountered

Tightness in the SPOT physical crude oil barrels was already forecasted in the second half of 2024 but this wasn’t enough to push oil prices higher on a steep upward momentum, oil prices have moved gradually on a flat upward fluctuation throughout the past 6 weeks and remain rangebound comfortably above the $80/bbl mark for both Brent crude price and WTI crude price. The undersupplied market resulted in lower inventories and steeper crude futures backwardation curve.

Oil prices remain rangebound for 6 weeks

Oil markets’ bullish sentiments remain relatively supported by strong gasoline demand and lower gasoline inventories. High driving summer season for US gasoline keeps oil prices buoyed, with gasoline demand surpassing 2019 levels. Also, Increasing speculative buying activities at a rapid pace might be resulting in higher oil prices for longer. However, even if oil prices remain rangebound, lower risk of outages in the US Gulf of Mexico during hurricanes season might reverse such bullish sentiments driven by short-term shifts

Fewer market surprises boost speculators bullish positions

Tightening physical market has eventually been reflected on the futures market, which resulted in higher bullish positions unlike the previous month’s heavy sell-off. Oil prices’ steady upward movement was primarily linked to strong speculative purchasing activities supported by fewer market surprises that oil traders have encountered in the previous 6 weeks. Fewer surprises from the global oil market on a clear OPEC+ output strategy till end of 2025, fewer surprises from monetary policies and fewer surprises from geopolitical factors.

Bullish sentiments amid easing US inflationary pressure

Signs of easing US inflationary pressure held oil prices comfortably above the $80/bbl mark throughout 6 consecutive weeks with a slight downward correction towards the weekly closing on weaker consumer sentiments amid concerns about Chinese crude oil demand.

OPEC and IEA oil demand forecasts divergence continue widening

OPEC and IEA world oil demand forecasts continue to largely differ, which will further cause uncertainty not only on oil demand prospects on upstream investments but on the market supply/demand balance. Whilst OPEC’s forecast remained unchanged, which sees oil demand growth of 2.25 million bpd in 2024 and 1.85 million bpd in 2025, IEA sees global oil demand growth slows further to 970,000 in 2024 and 980,000 in 2025 which is 50,000 bpd lower that its previous forecast for 2025. Interestingly, China oil demand growth contributes significantly for both forecasts, for IEA, China’s oil demand accounted for 70% of global oil demand growth, and will drop to 40% in 2024 and 2025. The latest Chinese crude oil imports data exacerbates such forecasts divergence after increasing in June to 11.35 million bpd m-o-m but down by 11% y-o-y. Does this mean that Chinese crude oil imports struggle to improve after the pandemic? Surprisingly, EIA global oil demand forecast is 1.1 million bpd for 2024 not far from IEA forecast.

How will OPEC+ deal with China’s crude oil imports data while returning barrels to the market?

Since China crude oil demand growth is the primary factor for world oil demand forecast, then how will OPEC+ proceed with the upcoming planned easing output cuts and returning huge volume of crude oil barrels to global oil markets from October 2024 onwards under a hypothetical bearish scenario if the market will not likely be positioned to swiftly absorb these barrels.

*Faisal Faeq

*Energy Adviser (former OPEC and Saudi Aramco)

Twitter: @FAISALFAEQ