SlavkoSereda/iStock via Getty Images
Crude oil futures extended heavy losses from the previous session, with the U.S. benchmark falling below $70 a barrel for the first time this year, giving back early gains after comments by delegates that OPEC+ was considering delaying plans to begin unwinding output cuts.
Instead, lackluster data from the United States and China have reinforced fears about a weaker global economy and oil demand, helping to trigger a broader rout in world markets, and the prospect of OPEC and its allies returning barrels to the market amid weak demand only adds to concerns.
Chinese data released over the weekend showed manufacturing activity sank to a six-month low in August as growth in new home prices slowed, and U.S. data from the Institute for Supply Management pointed to a continued slowdown in manufacturing.
Meanwhile, Libya’s central bank governor has reportedly said there are strong signs that the country’s political factions are moving closer to a deal, paving the way for more than 500,000 barrels of oil a day to return to the market.
Nymex front-month crude (CL1:COM) for October delivery closed -1.6% at $69.20 a barrel, its lowest settlement value since Dec. 12, and November Brent crude (CO1:COM) for delivery next month ended -1.4% at $72.70 a barrel, its weakest settlement since June 2023.
Additionally, Nymex gasoline and heating oil prices ended at their lowest level since December 2021, with October gasoline (XB1:COM) -0.8% at $1.96 a gallon and October heating oil (HO1:COM) -2.2% up to $2.16/gal.
Nymex Natural Gas Settlement Next Month (NG1:COM) for October Delivery -2.6% up to $2.15 per MMBtu.
ETF: (NYSEARCA:USE), (BNO), (UCO), (SCO), (USL), (DBO), (DRIP), (GUSH), (USOI), (UGA), (UNG), (BOIL), (KOLD), (UNL), (FCG)
OPEC+ would need to extend its additional voluntary output cuts for longer to sustain a recovery in oil prices, and if it does not, the average oil price could fall to $60 a barrel in 2025 due to lower demand and increased supply from non-OPEC countries, Citi analysts said, according to Reuters.
“While there could be a technical rebound in prices soon, if OPEC+ fails to provide assurances that current production cuts will be extended further indefinitely, then the market could lose faith in OPEC+ defending the $70 per barrel level,” Citi said.
Geopolitical tensions were initially expected to boost oil prices, but each rally since October 2023 has weakened them, Citi said, adding that the market has learned that tensions do not necessarily lead to reduced production or transit problems, making rallies an opportunity to sell.
UBS, on the other hand, expects Brent to exceed $80 a barrel in the coming months, saying the oil market remains undersupplied despite weak Chinese demand, and demand remains strong in other countries.