Oil prices are expected to not go up any time soon, according to a new analysis from Julius Baer, demand is deteriorating and there’s no “meaningful” supply tightness from the market.
On November 7, oil prices fell to their lowest level in three months since the rising OPEC exports and strengthening US dollar, with Rent crude futures at below $84 a barrel for the first time since the Israeli attacks on Gaza.
“The market seems to be shifting its focus from fear-driven geopolitics to hard-fact fundamentals… and despite the Israel-Hamas war ravaging, oil prices are back below the pre-conflict levels,” said Norbert Rücker, Head of Economics and Next Generation Research at Julius Baer, in a note.
Rücker noted that there are indeed ample supplies, and that demand is not surging.
“While prices seem less lofty following the correction, the headwinds should persist. We see prices heading lower over the coming months.,” Rücker said, adding that the uncertainty caused by the Israeli war on Palestine since early October has now dissipated.
Rücker added that the Western and Asian markets have “sufficient” amounts of storage in terms of supply.
While consumption in important markets is “stagnating,” production is also increasing. After picking up during the summer, Chinese demand has now cooled off, with imports still below peak levels and domestic refining slowing as margins are shrinking.
Russia’s oil exports and Canada’s oil production have also been “robust”, while Saudi Arabia’s output cuts are not a “sustainable equilibrium”.
“Given the full employment and confident consumer spending this year, there is little room for oil demand to expand in the western world,” noted Rücker.
“Oil politics could soon see a reset, as key Middle East producers aim for a higher output next year, seeking to cash in on capacity expansions.”
Saudi Arabia and Russia will continue with their production cuts of one million barrels per day until year-end.
