Oil Prices Drop to Near Three-Year Low Amid Weak Demand Outlook

Global oil prices fell to their lowest levels since December 2021, driven by reduced demand forecasts from OPEC+ and concerns about oversupply, despite ongoing production disruptions caused by Tropical Storm Francine.

Brent crude, the international benchmark, dropped 3.69% to settle at $69.19 per barrel, while US West Texas Intermediate (WTI) crude fell 4.31%, closing at $65.75 per barrel.

The declines on Tuesday were triggered by OPEC’s downward revision of its global demand growth estimates for 2024 and 2025. OPEC now expects oil demand to grow by 2.03 million barrels per day (bpd) in 2024, down from the previously forecasted 2.11 million bpd. For 2025, the projection was also lowered from 1.78 million bpd to 1.74 million bpd. These revised figures suggest a weaker outlook for oil consumption in the coming years, adding to market pessimism.

OPEC’s adjustment comes amid concerns over slowing economic growth, particularly in China, the world’s largest oil importer. China’s economic challenges, including sluggish domestic demand and a weaker-than-expected manufacturing sector, have dampened hopes for robust oil demand recovery. The country has also shifted more towards natural gas, reducing its reliance on oil for energy needs.

Meanwhile, the US Energy Information Administration (EIA) reported a higher global oil demand forecast of 103.1 million bpd for this year, an increase of 200,000 bpd from its previous projection. However, even this increase failed to lift oil prices, as traders remain focused on concerns over global demand.

Tropical Storm Francine, which is on track to become a hurricane, has prompted the shutdown of around 25% of offshore oil production in the Gulf of Mexico, according to the US Bureau of Safety and Environmental Enforcement. The Gulf accounts for approximately 15% of US oil production. Major energy companies, including ExxonMobil, Shell, and Chevron, have evacuated workers and halted some operations.

Despite these disruptions, analysts noted that production cuts have not been enough to offset weak demand expectations.

“The market is getting beat down while a tropical storm churns up the US Gulf of Mexico oil patch,” said Bob Yawger, an executive at Mizuho Securities.

Energy stocks were among the hardest hit on Tuesday, with companies like Chevron, Hess, and Occidental Petroleum reaching new 52-week lows. Investor sentiment has turned increasingly bearish as signs of slowing economic activity weigh on global demand projections.

Crude oil futures have experienced significant volatility in recent months, with prices erasing much of the gains made earlier in 2024. WTI is down about 5% year-to-date, while Brent crude has lost roughly 8% over the same period.

The EIA expects oil prices to recover somewhat in the fourth quarter of 2024, predicting Brent crude will average $82 per barrel, driven by ongoing production cuts from OPEC+. However, analysts remain cautious, citing continued concerns over demand weakness in advanced economies and China’s economic slowdown.

Reuters, CNBC, and Yahoo Finance contributed to this report.