Oil plunges on demand-supply imbalance in 2024, Brent dips 20% in 12 months

International crude oil prices have been on a broader downtrend and crashed nearly 20 per cent in the last 12 months due to a demand-supply imbalance in the market, even as the Organisation of Petroleum Exporting Countries and its allies (OPEC+) eye price stability. Brent and US West Texas Intermediate (WTI) crude futures logged the steepest year-to-date (YTD) crash last week after mixed US jobs data and a potential resolution of the Libya deal.

Amid the price decline, the OPEC+ group agreed last week to pause its planned oil output hike for two months after the benchmark Brent crude futures crashed to a 14-month low due to fragile demand and plentiful supply. OPEC nations will not proceed with the scheduled hike of 180,000 barrels per day (bpd) in October.

Also Read: OPEC+ to pause planned October oil output hike of 180,000 bpd for two months after Brent crashes to 14-month low

Brent crude plunges 20% in 12 months: What led to the crash in oil price?

-Commodity analysts said crude oil prices are weaker because of the current oil market conditions. They added that OPEC is ‘artificially’ curtailing oil production and losing its market share to maintain Brent above $80 per barrel.

-”US is producing more crude oil than any nation at any time for the past six years in a row, according to EIA. US output was 13.1 mbpd in 2023, which is expected to further jump to 13.19 mbpd in 2024 and 13.65 mbpd by 2025 and this record is unlikely to be broken by any nation in the near term,” Mohammed Imran, Research Analyst at Sharekhan Commodities by BNP Paribas told LiveMint.

-According to experts, benchmark Brent crude futures is unlikely to touch the $100 mark until and unless there is an escalation of the Middle Eastern war turning into a full-blown war involving major producers in the region.

-OPEC is likely to extend the curbs through the second half of this year and might start unwinding from early 2025. Crude is expected to trade in a range of $70 – $90 per bbl this year, with OPEC keeping a floor under prices,” Kaynat Chainwala, AVP-Commodity Research of Kotak Securities told LiveMint.

-US government data showed employment increased less than expected in August. Still, a drop in the jobless rate to 4.2 per cent suggested an orderly labor market slowdown that may not warrant a big interest rate cut from the Federal Reserve this month. Concerns around Chinese demand also kept pressuring oil prices.

Also Read: Oil & gas reserve found in Pakistani waters; likely to be fourth-largest in world: Report

-Last Thursday, Brent settled at its lowest since June 2023 despite withdrawing from US oil inventories and OPEC+’s decision to delay planned oil output increases. US crude stockpiles fell by 6.9 million barrels to 418.3 million barrels last week, with a projected decline of 993,000.

-Signals that Libya’s rival factions could be closer to an agreement to end the dispute that has halted the country’s crude exports also pressured oil prices this week. Exports remained mostly shut in, but some loadings were permitted from storage.

-Bank of America lowered its Brent price forecast for the second half of 2024 to $75 a barrel from almost $90 previously, it said in a note on Friday, citing building global inventories, weaker demand growth and OPEC+ spare production capacity. The US active oil rig count, an early indicator of future output, remained unchanged at 483 this week, said energy services firm Baker Hughes.

Also Read: Oil crashes 5% to hit nine-month low on reports of Libya dispute resolution; Brent slips below $74, erases 2024 gains

Where are crude oil prices headed?

Crude oil prices settled two per cent lower in the previous session, with a big weekly loss after data US jobs data was weaker than expected in August, which outweighed price support from a delay to supply increases by OPEC+ producers.

Brent crude futures were down $1.63, or 2.24 per cent, to $71.06 a barrel, their lowest level since Dec. 2021. US West Texas Intermediate crude futures fell $1.48, or 2.14 per cent, to $67.67, their lowest since June 2023. For the week, Brent declined 10 per cent, while WTI dropped around eight per cent. Back home, crude oil futures last settled 0.07 per cent lower at ₹5,700 per barrel on the multi commodity exchange (MCX).

Also Read: Oil swings as OPEC production pause vies with risk-off mood

OPEC says its member states’ exports account for about 49 per cent of global crude exports. OPEC estimates that its member countries hold about 80 per cent of the world’s proven oil reserves. Because of its large market share, OPEC’s decisions can affect global oil prices. OPEC+ members meet regularly to decide how much oil to sell on global markets.

Commodity analysts say oil prices continue to see high volatility but have remained under selling pressure overall amid further signs of a deteriorating global economic outlook, leading to sluggish demand (especially from China). 

“Downside looks limited amid support from bigger than expected drawdown in oil inventories and OPEC+ member’s decision to continue with their additional output cuts. On charts… prices hold support at 5,800/ 5,720, while on the upside resistance is seen at 6,030/ 6,150,” said Pranav Mer, Vice President, EBG – Commodity & Currency Research, JM Financial Services Ltd.

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