Crude oil prices were marked by significant volatility in September 2024. Both Brent and WTI benchmarks started the month under heavy pressure, with prices falling as concerns about weak demand from major economies overshadowed supply risks.
EXECUTIVE SUMMARY
Crude oil prices were marked by significant volatility in September 2024. Both Brent and WTI benchmarks started the month under heavy pressure, with prices falling as concerns about weak demand from major economies overshadowed supply risks. By September 10, the ICE Brent crude front-month future, which ended the previous month at $76.93, saw a steep decline of more than 10%, tumbling to as low as $68.68, its lowest level since December 2021. The NYMEX WTI active future followed the similar pattern, sinking to the low of $65.75, which also was more than 10% below the end of August level of $73.55. However, the following days of the month brought some relief to the market with Brent crude surging to $75.18 by September 19, or +9.4% from the recent low, while WTI crude restored to $72.49, or +10.3%, over the same period of time. But the rally was short-lived and the sentiment again turned grim towards the end of the month. As of September 27, the ICE Brent active contract settled at $71.54, losing $5.39, or around -7.0%, relative to the end of August, while the NYMEX WTI front-month futures slid down to $68.18, providing a decline of $5.37, or -7.3%, over the course of the month. The global economic backdrop played a crucial role in shaping the crude oil market throughout the month. China’s persistent economic slowdown weighed heavily on demand expectations. The country’s manufacturing sector continued to contract, leading to reduced optimism about global oil consumption. Meanwhile, the U.S. economy, though showing some resilience, provided mixed signals. While the labor market data showed job gains, they were below the average of the past year, and manufacturing activity remained in contraction, adding further uncertainty to the demand outlook. On the supply side, several key factors were in play. Libya’s oil exports were severely disrupted early in the month due to internal political tensions, causing a sharp reduction in output. However, as Libya gradually restored its oil exports later in the month, the market's concerns about supply tightened eased. Additionally, a hurricane in the Gulf of Mexico temporarily disrupted U.S. production, providing some upward pressure on prices mid-month. Despite these supply concerns, the market was largely dominated by fears of oversupply as OPEC+ announced plans to start increasing production in December. Saudi Arabia’s perceived shift away from targeting $100 per barrel oil, and towards regaining market share, also contributed to a bearish sentiment toward the latter part of the month. The U.S. Federal Reserve’s decision to cut interest rates by 50 basis points in mid-September provided temporary relief to oil prices, as a weaker dollar made oil more attractive to international buyers. However, this boost was short-lived as concerns about the global economy’s ability to absorb additional supply from OPEC+ continued to weigh on market sentiment.
Macroeconomic news will likely continue to be the key factor driving oil price dynamics in October 2024, as the worsening demand growth forecasts, in our opinion, became the main reason for the weak performance of the oil market in September. It's worth noting that the September correction affected not only near-term contracts but also led to a noticeable decline across the entire futures curve, indicating a negative revision of medium- and long-term price expectations. However, this also suggests that market participants might currently be too pessimistic in their forecasts, focusing exclusively on negative news. Therefore, any improvement (or at least stabilization) in the tone of macroeconomic news, especially from the U.S. and China, could trigger a mass unwinding of short positions and, consequently, a significant upward surge in oil prices. As such, opening short positions at current levels seems to us a rather risky idea, as this trade is already overcrowded. A more serious, though less likely risk factor for oil prices in the coming months, in our view, would be the continuation and extension of the OPEC+ agreement, as news and rumors at the end of September may suggest growing tensions among key participants in this agreement. Considering that the combined unused capacity of OPEC+ countries currently stands at about 5.5 mbd, a breakdown of the agreement would have catastrophic consequences for oil prices, as seen in the oil market dynamics of March-April 2020. While speculation on this issue could add pressure to the oil market in the foreseeable future, we consider the likelihood of this scenario unfolding to be frankly low and still believe that current oil price levels are attractive for cautious buying. Despite Brent and WTI futures breaking key resistance levels of $75 and $71, respectively, at the beginning of September, the further correction was limited. The next resistance levels for Brent oil are around $65, while for WTI, the range is $60-63, where it makes sense to open long positions more aggressively. At the same time, in our view, WTI currently looks significantly better than Brent from a technical perspective, so other things being equal, long positions in the U.S. crude futures looks more preferable, especially since the hurricane season is not over yet and could be an additional factor supporting price growth.
Global oil production experienced a slight contraction in August 2024 compared to the previous month, according to the most recent monthly data of the U.S. Energy Information Administration (EIA), with the supply levels declining by 57 thousand barrels per day (kbd), representing a marginal decline of 0.1% MoM. Despite to this monthly fluctuation, the volume of the total oil output around the globe remained very close to the threshold of 103 million barrels per day (mbd), which has been surpassed only twice in history in November-December 2023. On a year-over-year basis, global oil production, conversely, displayed a significant uptick, with the supply level increasing by 1.54 mbd compared to August 2023. This 1.5% YoY growth rate represented the fastest expansion observed over the past 8 months, further reflecting a notable expansion of the global oil output. When comparing to the five-year average for the same month, the reported figure was 4.66 mbd higher than the five-year average, marking a 4.7% increase. Such an increase relative to historical averages also confirms a substantial long-term upward trend in global oil production in the post-pandemic times. This modest decline in the global output in August 2024 was driven solely by a decrease in OPEC production, which, however, contrasted with its more robust year-over-year growth, while non-OPEC producers continued their upward trajectory both in monthly and yearly terms, albeit at a more moderate pace.
But according to the International Energy Agency (IEA), world oil supply rose by 80 kbd to 103.5 mbd in August 2024, with outages caused by a political dispute in Libya combined with maintenance in Norway and Kazakhstan offset by higher flows from Guyana, Brazil and elsewhere. Annual production gains are expected to strengthen from 660 kbd this year to 2.1 mbd in 2025. The IEA estimates that non-OPEC+ oil supply will increase by 1.5 mbd this year and next, while OPEC+ output may fall by 810 kbd in 2024 but rise by 540 kbd next year if voluntary cuts stay in place. In an apparent effort to halt the precipitous slide in oil prices, in early September Saudi Arabia and its OPEC+ allies announced that they would postpone by two months the start of their planned unwinding of extra voluntary production cuts. The delay gives the alliance some time to further evaluate demand prospects for next year, as well as the impact of Libyan outages and its plan to phase out additional curbs of 2.2 mbd by the end of next year. But with non-OPEC+ supply rising faster than the overall demand – barring a prolonged stand-off in Libya – OPEC+ may be staring at a substantial surplus, even if its extra curbs were to remain in place.
OPEC total crude oil production witnessed a marked contraction in August 2024, decreasing by 158 kbd from the previous month. This represented a decline of 0.6% MoM, marking the most rapid pace of monthly reduction in the past 7 months. Hence, on a year-over-year basis, OPEC production saw a more pronounced decline, with output dropping by 894 kbd compared to August 2023, reflecting a 3.3% YoY decline. This year-on-year decrease continued an extended trend of falling output, which has now continued for 17 consecutive months, or almost 1.5 years. Comparison against the five-year historical average for August extends the picture of the production slump as OPEC crude output in August 2024 was 908 kbd lower than the five-year average, translating to the same 3.3% decline. This shortage relative to the historical norms further reflects the impact of OPEC's long-term strategy to curb its production volumes to support oil prices. The decline in OPEC total oil output in August 2024 was mainly driven by plummeting crude oil production in Libya which recorded the worst monthly drop in supply over more than 2 years amid political tensions. Several other major OPEC-participating countries, including Saudi Arabia and Iraq, also experienced negative monthly oil production dynamics, albeit less pronounced than in Libya. In contrast, countries like Nigeria and Venezuela showed positive growth in crude production relative to the prior month, partly offsetting the overall drop in cartel’s total oil supply.
An oil price slump in early September, when Brent crude deepened close to $70 per barrel, forced OPEC+ members to step aside from their initial timetable of phasing out the 2.2 mbd “voluntary” cuts, delaying the plans to hike production by two months until December 2024. Taking into account that the next semi-annual OPEC and non-OPEC Ministerial Meeting is scheduled on December 1, 2024, this initiative looks like a brilliant way for the cartel to have another chance to discuss the abandonment of its previous production cut strategy before realizing this decision.
Estimates of OPEC crude oil production in August 2024 made by two other major data vendors, namely the IEA and the EIA, again were somewhat different comparing to the figures realized by OPEC itself. While OPEC reported a total crude oil production in August of 26.588 mbd, the IEA’s estimate was considerably higher at 27.37 kbd, implying a substantial absolute difference of +782 kbd, or approximately +2.9% above OPEC’s figures. This much higher total figure of OPEC’s crude supply was obtained mainly as a result of more optimistic IEA’s estimates of crude oil output in such OPEC nations as the U.A.E., Iraq, Iran and Kuwait. Meanwhile, the EIA reported a slightly lower relative to the cartel’s own assessment figure of 26.54 kbd, representing a decline of 48 kbd, or -0.2%. This lower EIA’s estimate of OPEC’s total crude oil production was affected primarily by lower figures of output in Nigeria and Libya.
Total oil production from non-OPEC countries saw only a modest increase in August 2024, rising by just 60 kbd compared to the previous month. While this only marked a 0.1% MoM change, it led to the new highest production volume of the group observed in the past 8 months. The continuous upward trend for the last 4 months reflected sustained momentum in the non-OPEC output, although the rate of growth has decelerated to the minimal print during this period. When examining year-over-year data, the scale of the total non-OPEC oil production growth becomes more pronounced. August 2024 recorded a 1.06 mbd increase compared to the same month in 2023, translating into a 1.5% YoY rise. This surge marked the continuation of an upward trend in annual terms that has persisted for an impressive 40 consecutive months, or almost 3.5 years. Notably, the yearly growth in August was the fastest of the last three months. Furthermore, non-OPEC production was 4.50 mbd above the average for this month over the last 5 years, providing a significant 6.8% increase.
On a country-wise level, the most prominent monthly growth of oil supply in August 2024 was recorded in the United States, which reached its new, albeit only marginally, highest production level over the history. Angola also exhibited significant month-over-month growth, marking its fastest increase in more than a half-year. China and Brazil both experienced steady growth in output, with China extending its upward trend for 3 consecutive months and Brazil for 5 months. Conversely, Russia faced a decline, recording its new lowest production in almost 4 years and continuing a 15-month downtrend. Kazakhstan also reported a slight monthly decrease, although its year-over-year growth remained strong. In contrast, Canada and the UK saw sharp declines, with the UK production falling at the fastest monthly rate in 12 months and Canada's breaking a brief upward streak.
In August 2024, the United States saw a significant increase in their total oil production, with the output rising by 138 kbd in compare to the previous month. Although this change represented a modest 0.6% MoM increase, it led to the new highest production level in the country on records, albeit only the marginal one. This upward movement continued a consistent trend of growth over the last 4 consecutive months, also being the fastest monthly rise in the past three months, further confirming accelerating momentum. Looking at the year-over-year comparison, the U.S. oil output in August 2024 surged by 547 kbd compared to the same period in 2023. This 2.5% YoY increase reflected a sustained and long-term expansion in production, with the data revealing a remarkable 41-month streak of uninterrupted year-over-year growth. When benchmarked against the 5-year average for this month of year, August's oil output was 2.82 mbd higher, equating to an impressive 14.2% increase.
The same time, U.S. shale oil production recorded only a marginal increase in August 2024, with the output rising by 8 kbd as compared to the previous month. Although this represented a subtle 0.1% MoM growth, it marked the fastest pace of increase in the past 4 months. So far as this growth continued a two-month upward, albeit very slow, trend in production, the U.S. shale oil supply reached its highest level observed over the past 4 months. On a year-over-year basis, shale oil production surged by 298 kbd, providing a 3.0% YoY rise compared to the same month in the previous year. Although this expansion continued a 40-month-long growth streak in annual terms, it represented the slowest yearly increase in the past 7 months. When looking at the broader historical context, the U.S. shale oil production in August 2024 outpaced its five-year average for the same month by a substantial 1.31 mbd, equating to a notable 14.8% increase.
According to the IEA, global oil demand growth continues to decelerate sharply from its post-pandemic rates. Reported monthly data covering 80% of global oil demand during the first half of 2024 confirm the steep decline in the rate of growth in total oil consumption around the world to the lowest since 2020. Thus, demand rose by 800 kbd year-on-year over the first half of the year, dramatically lower than the growth of 2.3 mbd recorded in 2023. For the year as a whole, global oil demand is on course to increase by 900 kbd in 2024 and 950 kbd next year. The recent slowdown in China has seen its oil consumption declining in annual terms for a 4th consecutive month in July 2024, by 280 kbd. This stands in marked contrast to the 1 mbd average pace of growth over the preceding 12 months, or the post-pandemic surge of 1.5 mbd in 2023. The country’s oil demand is now set to expand by only 180 kbd in 2024. Outside of China, oil demand growth is tepid at best. Latest data for the United States shows a sharp decline in gasoline deliveries in June, following unexpected strength in May. As such, gasoline use in the world’s largest oil-consuming nation declined year-over-year in 5 out of the first 6 months of this year. Structural headwinds and anemic economic growth mean that deliveries continue to contract in a number of advanced economies. This could leave advanced economies’ oil use this year nearly 2 mbd below its pre-pandemic level. With the steam seemingly running out of Chinese oil demand growth, and only modest increases or declines in most other countries, current trends reinforce expectation that global demand will plateau by the end of this decade.
The EIA reported a further contraction in global oil use in August 2024. The monthly decline was equal to 0.25 mbd in compare to July 2024, marking a relative decrease of 0.2% MoM. This downturn pushed total oil consumption around the world to its lowest level in the past three months. Although this marked the second consecutive month of declining consumption, it is worthwhile to remember that all this recent weakening in demand started roughly from an all-time high of 103.8 mbd which initially was recorded in February 2024 and then almost repeated in June 2024. That’s why the year-over-year comparison still has revealed a positive trend in global demand for oil. In August 2024, the consumption was 0.57 mbd higher than in August 2023, reflecting a 0.6% YoY increase. This increase was part of a three-month upward trend in yearly terms, indicating that despite the recent monthly dips, the broader trajectory over the past year has remained robust. When viewed against historical averages, the August 2024 figure was 3.85 mbd higher than the five-year average for the same month, representing a 3.9% increase. Both OECD and non-OECD countries contributed to this monthly decline of global oil demand in August 2024, although, on an annual basis, oil consumption dynamics in the OECD and non-OECD groups again presented contrasting trends. While OECD nations experienced both short- and long-term softness, with year-over-year demand notably down, non-OECD countries maintained a robust annual growth trend, albeit at a slower pace.
The IEA reported that global observed oil stocks declined by 47.1 million barrels (mb) in July 2024 from the previous month. The drawdown was concentrated in crude oil, NGLs and feedstocks (-75.5 mb), while oil products built to their highest level since January 2021. Total OECD commercial oil stocks fell counter-seasonally by 12.3 mb in July 2024 to stand 78.5 mb below the five-year average for this month of a year. Preliminary data showed continued stock declines in August 2024 as well.
Meantime, in June 2024, for which the IEA revealed detailed statistics, total OECD commercial oil inventories saw a modest decrease of 2.45 million tons as compare to the prior month, representing a 0.5% MoM contraction. This reduction marked a distinct break from the preceding two-month period of month-over-month expansion of the inventories. Moreover, the pace of the August decline was particularly striking, standing as the most rapid monthly drop in the last 8 months. On a year-over-year basis, the inventories experienced a positive change, rising by 2.23 million tons compared to the same month in 2023, or a 0.5% YoY increase. This annual growth was particularly significant as it represented the fastest year-on-year expansion in total OECD oil stocks in more than 3 years (38 months). However, a broader perspective reveals a divergence from historical trends. When compared to the five-year average for August, the inventories were still down by a substantial 43.43 million tons, an 8.4% drop.
Total U.S. oil inventories exhibited notable growth in August 2024, with stockpiles increasing by 8.33 mb from the previous month, reflecting a modest 0.5% MoM rise. This increment led to the highest inventory level recorded in the past 2 years, indicating a sustained upward momentum in total oil reserves in the country. The upward trajectory in stocks has persisted already for 6 consecutive months. From a year-over-year perspective, the total oil inventories in the United States showcased a more pronounced increase, with stockpiles rising by 42.83 mb compared to August 2023, representing a 2.7% YoY growth. This continuation of a positive annual trend for the 4th consecutive month highlighted the accelerating pace of inventory replenishment. Notably, this growth also constituted the fastest year-over-year increase observed in the last 44 months (3.5 years). However, despite these impressive monthly and yearly gains, the total U.S. oil inventories were significantly lower when compared to the five-year average for this time of year, falling short by 182.33 mb, indicating a 9.9% drop. August 2024 again showcased robust growth in both strategic and commercial U.S. oil inventories. Both major components of the total oil stockpiles in the country have been climbing steadily, with notable momentum in both month-on-month and year-over-year terms, particularly in the SPR.
Cushing, Oklahoma, witnessed a significant contraction in its inventory levels in August 2024, conversely to the dynamics of the total oil stocks in the country, with stockpiles decreasing by 3.46 mb, equating to an 11.6% decline from the previous month. This reduction resulted in the lowest inventory level recorded over the past 10 months as the ongoing decrease in inventories has persisted already for three consecutive months. On a year-over-year basis, the inventories at the Cushing storage declined by 2.77 mb, representing a 9.5% YoY decrease compared to August 2023. This persistent decline has now continued for 8 months in a row. Hence, the annual rate of decline has decelerated recently to the slowest pace observed in the past three months. When juxtaposed with historical data, the reported inventory levels at Cushing also were markedly lower, with a shortfall of 9.92 mb, or 27.3%, compared to the five-year average for this time of year.
Global floating inventories of crude oil witnessed a further substantial contraction in August 2024, decreasing by another 20.80 mb from the previous month, equating to a notable decline of 25.1% MoM. This drop pushed the offshore oil inventories to their lowest level observed in the past 6 months, continuing a sustained downward trend that has persisted for three consecutive months. The rate of depletion in August was particularly striking, representing the fastest month-over-month drop in nearly 6 years. The situation appeared equally concerning on a year-over-year basis as well. The total offshore stockpiles of crude oil around the world fell by 24.50 mb compared to the same period last year, translating to a dramatic decrease of 28.3% YoY. This ongoing reduction in inventories in yearly terms has now continued for 11 months, underscoring a prolonged period of diminishing stock levels. Also, the August decline reflected the steepest annual decrease in the last 4 months. Furthermore, the reported inventory levels in August were markedly below the five-year average for the month, falling short by 29.18 million barrels, or -31.9%.
The most regions of the world recorded depletion in their offshore crude oil inventories in August 2024 by contrast with the prior month. Thus, both Asia and Europe faced substantial reductions in inventories on both monthly and yearly bases, while the stocks in the Middle East Gulf tumbled to a multi-year low, despite showing less dramatic decline within the month. The North Sea and the US Gulf Coast also experienced notable declines in their floating crude oil stockpiles. Conversely, West Africa showcased remarkable growth in inventories which positioned it as the second largest holder of offshore crude oil stocks.
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