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Geopolitical conflicts once drove a significant increase in international oil prices, but this momentum did not last long.

On October 14th, OPEC released its monthly report, forecasting that global oil demand in 2024 will increase by 1.93 million barrels per day (bpd), lower than the 2.03 million bpd expected last month. The adjusted forecast for the average daily global oil demand in 2024 is expected to be about 104.1 million barrels. OPEC also revised down its global demand growth forecast for 2025 from 1.74 million bpd to 1.64 million bpd, with the adjusted average daily oil demand forecast for 2025 expected to be about 105.8 million barrels.

Less than 24 hours later, on October 15th, the International Energy Agency (IEA) stated in its latest monthly report that supply continues to flow into the market, and if there are no significant disruptions, the market will face a considerable surplus in the new year. The IEA revised down its global oil demand growth forecast for 2024 to 860,000 bpd, previously predicted at 900,000 bpd. The IEA revised up its global oil demand growth forecast for 2025 to 1 million bpd, previously predicted at 950,000 bpd.

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Under the impact of multiple bearish factors, international oil prices plummeted. After a significant drop of about 2% on October 14th, oil prices plummeted by more than 5% on the 15th. Brent crude futures once broke below the $74 per barrel threshold, and WTI crude futures once broke below the $70 per barrel threshold.

OPEC has revised down its oil demand growth forecast for the third time.

Behind the revision of the oil demand growth rate, OPEC explained that this adjustment is "mainly due to the actual data received and slightly lower expectations in some regions."

In fact, demand has shown signs of weakness in major global regions. Energy expert Qu Xinrong told reporters that, based on experience since 1960, the U.S. economic growth rate will slow down at the beginning of the Federal Reserve's interest rate cuts, and recent employment data has already weakened, leading to a decline in crude oil demand. Before the introduction of China's package of incremental policies, domestic oil demand was relatively weak, new energy vehicles have impacted oil demand, and gasoline and diesel demand have also been affected by the sales of natural gas heavy trucks, as natural gas prices are now cheaper than diesel. In addition, Europe's economic growth is weak, and the German economy is on the brink of recession.

Jinlian Chu crude oil analyst Xi Jia Rui told reporters that OPEC's consecutive three-month revision of demand growth forecasts indicates its pessimistic attitude towards the oil outlook. Oil consumption in some regions is lower than expected, and the future may face even more difficult times. This year, the global economic recovery has not been ideal, and the advancement of energy transition has affected consumption, with demand slowing down in major oil-consuming countries.

However, even after three consecutive months of revisions, OPEC's estimate of global oil demand is still more optimistic than Wall Street's expectations, and OPEC's oil demand growth forecast is almost twice that of the IEA.

There are still some positive factors to look forward to in the future. China's stimulus policies and the Federal Reserve's interest rate cuts are expected to provide support. Jia Sheng Group senior analyst Razan Hilal told reporters that China is seeking more proactive stimulus measures, aiming to achieve a GDP growth target of around 5%. If these measures are successful, they may prompt an upward revision of global oil demand, especially in the fourth quarter of 2024 and 2025.Risk of Supply Disruptions Temporarily Lifted

The risk of crude oil supply disruptions under the conflict in the Middle East has eased, but Xi Jia Rui cautions that there are still a series of uncertainties on the supply side in the future. Will the contradictions between Israel and Iran escalate and affect the production and export of crude oil in the Middle East? Will OPEC+ further relax the production cut policy? Will oil-producing countries that have not completed their production cut targets make up for the shortfall?

Qu Xinrong also believes that there are still uncertainties on the supply side in the future, with the main risk being geopolitical conflicts in the Middle East. Although Israel has stated that it will not attack Iran's oil and nuclear facilities, there may still be new variables in the Israel-Iran conflict after the US election, which requires further monitoring. Under the Russia-Ukraine conflict, the withdrawal of Western investment in Russia will also have some impact on Russia's oil production.

As the risk of geopolitical conflicts eases, whether OPEC will increase supply as planned has become another cloud. Due to the sharp drop in oil prices, on September 5, OPEC announced on its official website that eight countries agreed to extend the voluntary production cut plan by two months until the end of November 2024, and will cancel the voluntary production cut of 2.2 million barrels/day from December 1 according to the new plan. However, OPEC added that participating countries can flexibly suspend or revoke these production adjustment decisions as needed.

OPEC is facing a dilemma. If it continues to cut production, it may lose more market share; but if it does not take long-term actions to address global oversupply, oil prices will further weaken.

If oil prices continue to be weak, will OPEC delay the resumption of some production again? This question is still in suspense, and OPEC has not yet decided. Xi Jia Rui analyzes that due to long-term production cuts, some oil-producing countries have lost market share, and the benefits of production cuts to oil prices have been basically digested. Therefore, under the premise that production cuts cannot effectively boost oil prices, in order to regain lost shares, the probability of OPEC delaying production increases is not great.

In Qu Xinrong's view, it is possible for OPEC to delay increasing production. Although there was news a while ago that Saudi Arabia gave up the target price of $100/barrel, under the current situation where the US and Russia have not significantly increased production, Saudi Arabia still has a certain ability to control the market and should not significantly increase production in the short term. However, Saudi Arabia's statement also reflects a subtle shift from focusing on prices to focusing on market share. The intensity of future production cuts may be weaker than before.

Is the oil market moving towards "oversupply"?

Behind the sharp drop in oil prices, concerns about oversupply in the oil market are heating up.

The IEA stated in its monthly report that the escalating tensions between Israel and Iran may pose a danger to the energy infrastructure in the region. However, with OPEC+ idle production capacity approaching record levels, the growth in US production will cause an oversupply at the beginning of 2025.The implementation of the OPEC+ production cut agreement has also been a significant issue. Efforts by OPEC+ to boost oil prices have been impacted due to countries such as Iraq, Kazakhstan, and Russia not fully honoring their production cut commitments.

An OPEC report indicates that Iraq reduced its production by 155,000 barrels per day (bpd) to 4.112 million bpd in September, nearing the target of 4 million bpd, but still exceeding the quota and failing to make up for previous overproduction; Kazakhstan increased its oil production by 75,000 bpd to 1.545 million bpd in September, also failing to fulfill its production cut promise; Russia reduced its oil production by 28,000 bpd in September, but still maintained a level of around 9 million bpd, exceeding the quota.

Tom Kloza, Global Head of Energy Analysis at Oil Price Information Service, stated that the oil market will enter a turbulent year in 2025, with crude oil prices potentially falling to "very low" levels. Traders should not bet on supply disruptions in the Middle East, as the global oil supply is already so excessive that prices are bound to decline.

Kloza forecasts that oil production in 2025 will exceed the actual world demand, and the situation in 2025 will be even worse if OPEC+ returns to the market with the previously reduced production.

Xi Jiarui analyzed for reporters that as supply gradually increases and demand remains weak, the fundamentals of the oil market are not ideal and are evolving towards a trend of oversupply. Affected by this, crude oil prices may exhibit a ladder-like downward trend. However, during the period of the Federal Reserve's interest rate cuts and the U.S. elections, oil prices may maintain a wait-and-see震荡 pattern. Furthermore, if geopolitical tensions escalate, there is a possibility that oil prices could be boosted in the short term.

Looking ahead, Qu Xinrong believes that oil prices may be weak from the fourth quarter of this year to the first half of next year, but from a broader perspective, the likelihood of Brent crude prices deeply falling below $70 per barrel is not significant. Factors such as the Federal Reserve's interest rate cuts and China's stimulus policies will support oil prices. Strategically, opportunities to buy at the bottom of Brent crude prices between $65 and $70 per barrel can be considered.