Created
: 2024.08.28
2024.08.28 22:22
West Texas Intermediate (WTI), the US Crude Oil benchmark, is trading down by almost one and a half percent to just above $74.00 on Wednesday. WTI is falling as concerns about Chinese demand and risks of a broader economic slowdown offset supply losses from Libya and wider geopolitical risks from the region.
A slowdown in the Chinese economy, the largest importer of Crude Oil in the world, is reducing demand whilst structural changes and the replacement of gasoline-fueled cars with electric vehicles, as well as a general shift towards a greater reliance on green energy, is further taking its toll.
"The big surprise this year on the demand side has been the softness of Chinese demand growth. The slowdown in China demand, which is mostly structural, is an important factor in Oil markets over the next few years. Some of it is a macro story - GDP is rising at a slower pace - the other reasons are more Oil-specific and micro, and include fuel-switching to EVs and from Oil to LNG," says Daan Struyven, Head of Research at Goldman Sachs.
WTI price declines on Wednesday despite the news from Libya that the Sarir Oil field has almost completely halted output, according to Reuters. The move was orchestrated by the Libyan National Army (LNA) who are protesting about the Libyan government's sacking of the Governor of the Central Bank of Libya (CBL), Sadiq al-Kabir. The LNA controls the country's east and south where most of the oil fields lie. The LNA declared on Monday that all production and exports would be halted.
Speculation that OPEC+ will begin raising production in order to bring down the price of Oil so as it make it less profitable for competitors in the form of US shale producers, is further weighing on WTI.
"OPEC has been quite effective in balancing the market and keeping Oil prices in a range," said Struyven, in an interview with Bloomberg News, however "this is set to change, if OPEC+ increases production."
The result of such changes in OPEC+'s strategy will be that Oil prices could fall to a lower equilibrium rate where the new floor for prices becomes the equilibrium rate for shale producers. However, the decline is likely to be gradual given countervailing bullish factors, says the Goldman Sachs researcher.
US monetary policy could be a further factor for Oil price. If the US Federal Reserve (Fed) decides to go ahead with cutting interest rates in 20204-5, as now seems highly likely, WTI could gain a back wind because it would lower the opportunity cost of holding Oil vis-a-vis interest-paying assets.
The US Crude inventories declined last week, according to data from the American Petroleum Institute (API). Crude Oil stockpiles in the United States for the week ending August 23 fell by 3.4 million barrels. This compared to an increase in stockpiles of 0.347 million barrels in the previous week. The market consensus estimate had been for stocks to decline by 3.0 million barrels.
On Wednesday, the Energy Information Administration (EIA) will release its figures on US crude inventories. They are expected to show a similar fall, in line with the downtrend witnessed during the summer. Out of the last nine US inventory releases, eight showed declines. This reflects increased demand which is a supportive background factor for Oil.
Created
: 2024.08.28
Last updated
: 2024.08.28
FXStreet is a forex information website, delivering market analysis and news articles 24/7.
It features a number of articles contributed by well-known analysts, in addition to the ones by its editorial team.
Founded in 2000 by Francesc Riverola, a Spanish economist, it has grown to become a world-renowned information website.
We hope you find this article useful. Any comments or suggestions will be greatly appreciated.
We are also looking for writers with extensive experience in forex and crypto to join us.
please contact us at [email protected].
Disclaimer:
All information and content provided on this website is provided for informational purposes only and is not intended to solicit any investment. Although all efforts are made in order to ensure that the information is correct, no guarantee is provided for the accuracy of any content on this website. Any decision made shall be the responsibility of the investor and Myforex does not take any responsibility whatsoever regarding the use of any information provided herein.
The content provided on this website belongs to Myforex and, where stated, the relevant licensors. All rights are reserved by Myforex and the relevant licensors, and no content of this website, whether in full or in part, shall be copied or displayed elsewhere without the explicit written permission of the relevant copyright holder. If you wish to use any part of the content provided on this website, please ensure that you contact Myforex.
Myforex uses cookies to improve the convenience and functionality of this website. This website may include cookies not only by us but also by third parties (advertisers, log analysts, etc.) for the purpose of tracking the activities of users. Cookie policy