Oil commentary - 16 October 2024

Morning all. Been a while, hasn’t it? Well, today is one of those “just popping in to say a quick hi” commentaries, because I’m out from today until the 28th of October. However, we have today, so let’s have a look at all things oily, shall we?

Brent is trading this morning at $74.53, up 0.28, and WTi is trading up 0.30 at $70.88. Quite the move for Brent over the last week, dropping from a high of $81.14 on the 8th Oct to a low of $73.34 yesterday. Let’s not get all “yeah, but things have calmed down, mate,” shall we? Bear in mind that on the 1st of October, Brent was trading at $69.91. Arms were being flung and traders left hung (nice. Very nice). But when you park all the hyperbole surrounding energy prices, things are a bit calmer. Sure, arms are wailing, but I’d argue it’s like a group of 6-year-olds attempting a Mexican wave. You know it’s there, you can hear them, but it’s not quite right.

What’s the latest reason being offered for such a steep drop? Ah yes, here we go: “Oil prices tumbled more than 4% to a near two-week low on Tuesday due to a weaker demand outlook and after a media report said Israel would not strike Iranian nuclear and oil sites, easing fears of a supply disruption.”

Now, I can’t argue with this. But what’s the ratio we can attribute to the price drop between those two facts? I’d say 80% of the drop is around demand concerns versus geopolitical tensions. And 90% of that 80% can be pinned on one thing: China. The market got a bit of a "yeah, nah" boost after some stimulus measures were announced last week, but the data doesn’t lie. Chinese demand hasn’t kept up with what many predicted, and if anything, demand could indeed be plateauing. My colleague Elif wrote about this back in early August, and I covered it here too.

The kicker this week, though, is OPEC downgrading those oh-so-optimistic demand forecasts made at the start of the year, with China revised down as well. My good friend Clyde Russell put it a lot more eloquently than I ever could, so I’ll hand over to him: “China’s crude oil imports fell for a fifth straight month year on year in September and are down 350,000 bpd so far in 2024. This makes OPEC’s modest cut to its China oil demand growth forecast for 2024 to 580,000 bpd look hopelessly optimistic.” Hopelessly optimistic.

The market agreed with Clyde, and that’s why oil is back in the comfort bosom of the mid-$70s. However, global tensions are still very much there, so keep your eyes on developments.

See you end of Oct. Be safe, and be good.