

Market Analysis
The global oil market is currently grappling with several challenges that could lead to lower oil prices. Although there have been brief rallies, the market has struggled to maintain upward momentum, with analysts at Piper Sandler predicting further declines.
Several factors contribute to this bearish outlook, including weak demand, concerns about oversupply, and broader macroeconomic conditions.
A major driver of the expected downturn in oil prices is the ongoing weakness in global demand. Piper Sandler highlights troubling signs, particularly from China, the world's largest oil importer. Updated data on China's oil product inventories and demand show a significant drop in consumption. From March to July 2024, China's final product demand fell by 500,000 barrels per day (kb/d) year-over-year, with no immediate signs of recovery. This trend is consistent across other major economies, where industrial activity and transportation demand remain sluggish.
In addition to weak demand from China, global diesel demand has also been underwhelming. “The fact is that middle distillate demand is weak everywhere. Global growth for diesel demand has been negative in the latest three-month moving average ending in June and looks unlikely to improve in July,” the analysts noted.
On the supply side, the situation is equally concerning. The futures market has consistently shown a contango structure, where future oil prices are higher than current prices, indicating expectations of oversupply. Piper Sandler points out that despite recent efforts to manage supply, OPEC and its allies are struggling to stabilize the market. The analysts suggest that OPEC may need to implement further production cuts as the market moves into Q4 2024 to prevent a significant decline in prices.
Furthermore, inventory levels, especially in the United States, remain high. This surplus, combined with weak global demand and strong production from key producers like the U.S., Saudi Arabia, and Russia, adds downward pressure on prices as the market contends with excess supply.
The broader macroeconomic environment also contributes to the negative outlook for oil. Global economic growth is slowing, with key indicators such as manufacturing output and trade volumes pointing to a deceleration. Rising interest rates in developed economies, particularly the U.S., are expected to dampen consumer spending and industrial output, further reducing oil demand.
China's economic policies have also failed to generate the growth needed to support higher oil prices. Despite some policy adjustments, Beijing's measures have not been sufficient to significantly boost economic activity or global oil demand.
Technical analysis supports the bearish perspective, with Piper Sandler noting that critical support levels have been breached in recent trading sessions. The market sentiment remains very low, with speculative positions in Brent futures showing a sharp decline.
Paraphrasing text from "Reuters" all rights reserved by the original author.