Market Quote: Why are Oil Prices Falling?
Author: The editor's desk
September 25, 2024
A mid-week analysis of what’s happening in global financial markets from the perspective of AGF’s investment management team.
This summer’s drop in West Texas Intermediate (WTI) crude oil prices – from a high of US$80 per barrel to roughly US$70 per barrel – seems to be driven by several reasons, including Chinese demand that came in below forecast with growth ranging from 300 to 500 thousand barrels per day versus expectations of 700-800 thousand barrels per day. This was driven by weaker macroeconomic sentiment, weather issues and increased electric vehicle and liquid natural gas (LNG) trucking penetration.
Another reason stems from the notion that 2025 could be a significant year of growth for non-OPEC countries, with several major projects expected to come online in Brazil, Canada, Guyana and the United States. OPEC+, meanwhile, is sitting on five million barrels a day of spare capacity and has been talking of bringing these barrels back into the market.
While WTI oil prices have rebounded somewhat in recent weeks – having fallen to US$65 a barrel earlier this month – it’s likely that these factors could keep a ceiling on prices in the near-to-medium term.
That said, prices below the US$65 a barrel are likely to incentivize marginal buyers like the U.S. Strategic Petroleum Reserve from stepping in, which could mean prices remain range bound over the next little while absent a reversal in policy by OPEC+ or a significant escalation in geopolitical tensions around the world.
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