Market Analysis

In Asian trading on Tuesday, oil prices dropped to their lowest levels since mid-June due to persistent fears of a supply surplus and uncertainties surrounding demand.

China, the leading oil importer, unexpectedly cut interest rates, but the reduction was too minor to boost market sentiment, according to analysts.

By 20:58 ET (00:58 GMT), Brent oil futures set to expire in September fell 0.2% to $82.26 a barrel, while West Texas Intermediate crude futures also dipped 0.2% to $77.20 a barrel.

Morgan Stanley Predicts Oil Market Surplus by 2025
Morgan Stanley analysts issued a note this week cautioning that the oil market is likely to experience a surplus by 2025, with prices expected to stabilize in the mid-to-high $70s range.

Despite current market tightness, the analysts believe equilibrium will be achieved by the fourth quarter. They attribute the anticipated surplus to declining seasonal demand and a projected increase in global oil production.

Nonetheless, Morgan Stanley forecasts that oil prices could reach $86 a barrel by the end of the third quarter, indicating a potential short-term rise from current levels.

Demand Uncertainty and Gaza Ceasefire in Focus
Market sentiment remains uncertain due to indications of a slowdown in global economic growth, exacerbated by high interest rates.

Concerns about China, the top oil importer, persist even after the country unexpectedly cut benchmark interest rates in an effort to stimulate growth. Analysts remain skeptical, noting that the cut was insufficient to bolster confidence.

The Third Plenum of the Chinese Communist Party provided little guidance on future stimulus measures, despite the Chinese economy growing less than anticipated in the second quarter.

Slowing economic growth poses a challenge for oil demand.

Additionally, oil markets are monitoring developments in the Israel-Hamas conflict, as Israel indicated a resumption of ceasefire talks this week, despite ongoing strikes in Gaza.

U.S. politics also garnered attention after President Joe Biden announced he will not seek reelection, endorsing Vice President Kamala Harris as the Democratic presidential candidate. Both Biden and Harris are currently trailing behind Republican nominee Donald Trump, who has proposed increasing U.S. oil production if elected.

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