What's Affecting Oil Prices This Week? (Oct. 21, 2024)

The price of Brent crude ended the week at $73.17 after closing the previous week at $78.79. The price of WTI ended the week at $69.35 after closing the previous week at $75.49. The price of DME Oman crude ended the week at $72.64 after closing the previous week at $78.58.

Oil prices fell back with the oil market dismissing geopolitical risks while having concerns about the outlook for oil demand growth. The International Energy Agency (IEA) recently decreased its forecast for oil demand growth slightly to 900,000 bbl/d from 970,000 bbl/d. Earlier this year the IEA was forecasting demand growth of 1.30 MMbbl/d. The research arm of OPEC also reduced its global oil demand growth for 2024 once more with a downward revision from 2.03 MMbbl/d to 1.93 MMbbl/d. Earlier this year, OPEC was forecasting 2.25 MMbbl/d of oil demand growth.

Currently, we are forecasting that oil demand will increase by 1.20 MMbbl/d in 2024 – but there certainly are downside risks associated with our forecast – especially with respect to China. At the end of last week, official data were released by China’s government, which showed that China’s economy grew by only 4.6% in Q3 and below the 4.7% reported for Q2 – and below the 5% target. China’s economy continues to be hampered by relatively weak domestic demand with retail sales only increasing by 3.3% -- and by a weak real estate sector -- with property investments decreasing by 10.1% and new homes sales decreasing by 22.7%.

Also, there are downside risks associated with the supply side of the equation. Through August, the total oil production of OPEC+ has exceeded the target production. In August, total OPEC+ production (according to IEA) was 0.86 million b/d above target. The bulk of the overproduction was associated with the following OPEC+ members

• Iraq – overproduction of 470,000 bbl/d
• Kuwait – overproduction of 110,000 bbl/d
• UAE – overproduction of 390,000 bbl/d
• Russia – overproduction of 130,000 bbl/d

Last week, Iraq’s national oil company stated that it reduced production by 260,000 bbl/d – but further reductions will be required by Iraq and the other members that are overproducing to prevent a fight over market share with Saudi Arabia, which has signaled that it is not willing to take on the burden of reducing production to support oil prices by itself.

With last week’s drop in oil prices, any sort of attack from Israel on Iran will likely result in a temporary spike in the oil prices. Israel continues to have success in eliminating senior leadership of Hezbollah and Hamas, including the elimination of the Hamas leader Yahya Sinwar, which raised the hopes of some that a ceasefire could be reached in Gaza. We do not hold the same level of hope. Last week, we reiterated the view that Israel will not launch a major attack on Iran. We are still holding to that view. It has been reported that Netanyahu has informed the Biden Administration that Israel will not attack Iran’s nuclear facilities or Iran’s energy infrastructure. As we pointed out last week, the US sending a Terminal High Altitude Area Defense (THAAD) battery and associated troops to Israel. aligns with our previously stated view that the US will support Israel against attacks, but the current US administration is unlikely to support Israel in a major offensive action against Iran. Additionally, we think that Iran will continue to show restraint in responding to Israel since Iran is not interested in a major conflict with the Israeli military that will be supported by the US and its allies. Therefore, we think the probability of major conflict between Israel and Iran is low – and as such, it is highly unlikely that there will be any material interruption to the flow of oil. Additionally, we do not think that any future Israeli attacks on Lebanon will create the dynamics that will lead to a material interruption to the flow of oil.

For the upcoming week, if there is no Israeli attack on Iran (and vice versa), we think that the price of Brent crude will struggle to break through $75.

For a complete forecast of refined products and prices, please refer to our Short-term Outlook.

About the Author: John E. Paisie, president of Stratas Advisors, is responsible for managing the research and consulting business worldwide. Prior to joining Stratas Advisors, Paisie was a partner with PFC Energy, a strategic consultancy based in Washington, D.C., where he led a global practice focused on helping clients (including IOCs, NOC, independent oil companies and governments) to understand the future market environment and competitive landscape, set an appropriate strategic direction and implement strategic initiatives. He worked more than eight years with IBM Consulting (formerly PriceWaterhouseCoopers, PwC Consulting) as an associate partner in the strategic change practice focused on the energy sector while residing in Houston, Singapore, Beijing and London.