Crude fell below $70/bbl on Sept. 3 and hasn't climbed above it since. (Source: Shutterstock)
Worldwide pressures have mounted, taking a toll on oil prices this week, and analysts are waiting to see whether markets are suffering from irrationality -- or if a long-term downward trend is in store for the winter.
The downward slope of Brent and WTI futures began on Aug. 29, with Brent trading at $78.82/bbl and WTI trading at $75.91/bbl. On Sept. 10, Brent crude was trading at $69.02/bbl before bouncing back to $72.18/bbl on Sept. 12. WTI was trading at $65.75/bbl on Sept. 10 before bouncing back to $69.18 on Sept. 12.
And, as in year's past, the fate of the market may ultimately be in OPEC's hands, and more specifically the organization's willingness to cut production more than it already has. After a period in which OPEC's reputation for flaunting its own quotas was met with months of member nation's discipline, slippage is appearing. That, even as OPEC decided to keep its plans to unwind voluntarily production cuts until December through November 2025.
Along the way, a jitteriness evidenced by eroding prices has seemingly permeated oil traders' views.
"This week the market saw something turn fundamentally bearish," wrote Piper Sandler & Co. analysts Jan Stuart and James Noonan in a market report. "It's no longer just the speculators and macro positioning. The way the futures curves of Brent and WTI collapsed on [Sept. 10] tells you that physical market actors see too much supply on offer."
For the last year, Nymex crude oil futures haven't seen the wrong side of $70/bbl since December 2023, and then only briefly for three days.
Crude fell below $70/bbl on Sept. 3 and hasn't climbed above it since. On Sept. 10, the bottom fell to $65.75/bbl at the Nymex, the lowest since May 2021. The price had rallied a bit by Sept. 12, as Hurricane Francine shut down much of the Gulf of Mexico's crude production.
Analysts pointed to several factors driving the price down. The International Energy Agency (IEA) forecasted on Sept. 12 that global demand for oil will rise less this year than previously expected, primarily due to weakness in China's economy. By the end of the year, world demand will grow by about 900,000 bbl/d, about 7.2% less than expected.
"An increase of 950,000 bbl/d in 2025 will be equally subdued," the IEA wrote.
In the U.S., the Energy Information Administration (EIA) predicted Sept. 10 that demand growth will plateau this year at about 20.3 MMbbl/d. The estimate was a 1% decrease from the agency's August report.
The New York's Federal Reserve Bank's Recession Prediction Model gives a 62% chance of U.S. economic downturn in the next 12 months.
All of the negative news led Piper Sandler to be confused by OPEC'S recent actions. Even though the member nations announced Sept. 5 that they would delay an increase in crude output planned for November, the organization's production numbers have continued to rise.
"OPEC seems to not have seen the writing on the wall," the analysts said. The four-week average for exports from the country rose from just above 13 MMbbl/d in June to more than 14 MMbbl/d on Sept. 1.
"We expect, however, that OPEC (Saudi Arabia) will cut supply, and soon (unilaterally at first), and defend price," the analysts wrote. "The longer we don't see this, however, the more we worry."
The U.S. had 799 MMbbl of crude supply in the first week of September, an increase of 28 MMbbl from the same time last year, according to the EIA.
With a potentially slowing U.S. and global economy, much of an eventual recovery in crude prices will depend on OPEC. Market watchers should keep an eye on the organization's next announcement, scheduled for Oct. 2. Minister's may decide to cut prices.
If OPEC instead increases supplies for the rest of the year, crude prices could fall below $60/bbl in 2025, Piper Sandler predicted.