Oil prices suddenly fell short! OPEC lowered oil demand expectations three times, and “oversupply” may become reality from expectations

The Zhitong Finance App learned that crude oil market analysts were very surprised by the Organization of Petroleum Exporting Countries OPEC (OPEC), which lowered the global oil demand growth forecast for this year and next for three consecutive months. The organization seems to have finally realized that the scale of global fuel use is rapidly slowing down. According to information, the Organization of Petroleum Exporting Countries stated in its latest monthly report that global oil consumption will increase by 1.9 million b/d in 2024, an increase of only about 2%, which is 106,000 b/d less than the organization's previous forecast. Consumption is expected to increase by only 1.6 million b/d in 2025.

According to OPEC's latest monthly report, the downward revision “is mainly due to actual data received, plus a slight decrease in demand expectations for some important regions.” After the release of this latest monthly report, the price of Brent crude oil, the benchmark for international crude oil prices, fell sharply. It fell by more than 2% on Monday, continuing the decline of last Friday. This official report also made most crude oil futures traders begin to believe in the “oversupply” view of oil put forward by Wall Street banks such as Goldman Sachs and Morgan Stanley — that is, starting in 2025, there will be a situation where supply will continue to exceed demand in the oil market, which in turn will continue to weaken the price of Brent crude oil.

As OPEC lowered its overall oil demand forecast three times in a row, including crude oil and various refined oil products obtained after crude oil processing, OPEC has finally begun to abandon the strong bullish forecast it has held since this year. “The decline in demand is indeed worrying and indicates that oil prices will continue to weaken in the future.” Peter Cardillo, an analyst at Spartan Capital, said in a statement.

OPEC confidence begins to wane — the organization lowered its oil demand forecast for three consecutive months

Even after experiencing drastic production cuts by the “OPEC+” organization, which includes Russia and other countries, OPEC's latest oil demand forecast is still an outlier — higher than the expectations of Wall Street banks and some commodity trading companies, and at the high end of the range expected by Saudi oil giant Saudi Aramco. This is roughly double the rate of demand growth expected by the International Energy Agency (IEA), which is pessimistic about oil demand since this year.

The actions of many OPEC member states themselves also show that they lack confidence in the demand outlook report issued by OPEC headquarters in Vienna. Although the organization's predictions indicate that there are potential situations favorable to crude oil prices, such as major supply shortages, they continue to delay plans to “restore crude oil” to increase production.

Under Saudi Arabia's leadership, OPEC+, which includes OPEC and its allies, will gradually resume production of 2.2 million barrels per month starting in December, two months later than originally planned. However, market observers at Wall Street firm JPMorgan (JPMorgan) and Citigroup Inc. (Citigroup Inc.) are still deeply skeptical about whether these production growth projects can continue to advance in the face of a slowdown in demand growth in major oil consumers in China and India and a surge in supply in America.

Although the price of Brent crude oil, the crude oil price benchmark that best reflects strong and weak oil demand, continues to be driven by the geopolitical conflict in the Middle East, the current transaction price from $90 per barrel hit this year to $77 per barrel is too low for some OPEC countries such as Saudi Arabia. Also, it is worth noting that major production reduction efforts by OPEC+, which includes OPEC and its allies to support oil prices, have been disrupted by countries that have failed to cut production — in particular, supply and demand caused by Iraq, Kazakhstan, and Russia. In particular, Russia continues to pour cheap Russian oil into the market due to its eagerness to obtain large amounts of revenue to invest in the Russian-Ukrainian conflict.

The report also shows that OPEC member Iraq has failed to make positive progress in the share of production cuts it should have borne since the beginning of the implementation year, and continues to exceed its agreed quota.

The report shows that Iraq cut production by about 155,000 barrels per day to 4.112 million barrels in September, close to its target of cutting production by 4 million barrels, and the master remains above this target — showing that Iraq is following Russia's footsteps and has not made any progress in promising additional production cuts to make up for overproduction. However, an Iraqi official said over the weekend that the country's production was already below the quota.

Kazakhstan, on the other hand, increased production by 75,000 barrels per day to 1,545,000 barrels, in violation of its promise to cut production. Russia, on the other hand, continues to break production reduction promises, reducing production by only 28,000 b/d per day, but it is still far above the production limit indicated by its quota.

It is expected that OPEC+ will make a formal decision on the production increase it plans to carry out in December in the next few weeks. Wall Street players generally expect OPEC to continue to cut production to support oil prices, rather than bucking the trend and resuming production increases. The coalition will meet on December 1 and review the 2025 production policy.

Is the pessimistic expectation of “oversupply” about to come true?

Last week, the price of Brent crude oil, the benchmark price of crude oil rose sharply to over $80 per barrel, mainly due to renewed tension between Israel and Iran. However, since then, as negative concerns about “oversupply” continued to ferment, OPEC's latest report further strengthened traders' expectations of impending oversupply in the oil market. The price of Brent crude oil has continued to weaken recently, and has now fallen back to around $77 per barrel.

Prior to OPEC's release of the latest monthly report, the latest EIA data showed that US crude oil inventories unexpectedly increased by 5.8 million barrels in the week up to October 4, exceeding expectations of 2 million barrels, suggesting that supply is still sufficient, and market demand has not significantly heated up, fueling negative expectations of “oversupply.”

The expectation that the oil market will completely shift to “oversupply” is the core logic of most investment institutions bearish the 2025 Brent crude oil price trend. Ben Lecock, head of oil trade from the Tork Group, recently said that the price of Brent crude oil may soon enter the pessimistic range of 60 US dollars. Commodity giant Tork Group, which has been bullish on crude oil for a long time, rarely shares the “oversupply” view.

Research reports recently released by Wall Street firm Morgan Stanley and Goldman Sachs all show that it is expected that after the end of 2024 or the beginning of 2025, the entire oil market may shift from a slightly tight balance of supply and demand to potential surpluses. Goldman Sachs even predicts that the trading price of Brent crude oil may fall to a phased low of 61 US dollars per barrel.

Exane BNP Paribas, the securities division of BNP Paribas, downgraded ExxonMobil's stock rating from “neutral” to “reduced holdings,” and the target price was set at $105 (compared with the company's stock price closing at $123.610 last week). This is also the first time in more than a year that the stock has been given a “reduced holdings” rating by an investment institution, which means that the stock may fall further due to weak crude oil prices.

Lucas Hellman, an analyst from BNP Paribas, also downgraded British Petroleum (BP.US) and Spain's largest oil company Repsol (REPYYY.US) stock ratings from “outperforming the market” to a “neutral” rating on the grounds that “OPEC+” production capacity is about to face serious overcapacity, indicating that this negative outlook “hangs over the entire petroleum industry like the sword of Damocles,” and said that all three traditional energy companies face the risk of extremely weak refining profit prospects.

Analyst Herman said that due to changes in demand and supply dynamics in the oil market, the price of Brent crude oil, the global crude oil benchmark, may soon fall to $60 per barrel, so “we doubt that investors' interest in investing in the oil industry will be challenged to a greater extent.”