Oil Prices Drop to 2021 Lows Amid Weak Chinese Demand and Global Market Pressures
Oil prices have fallen to their lowest levels since 2021, with Brent crude slipping below $70 per barrel due to weakened demand and geopolitical tensions. On Tuesday, Brent crude dropped by 3.69%, closing at just over $69, a significant decline not seen in nearly three years.
“This is the first time Brent has closed below $70 since late 2021,” noted Warren Patterson and Ewa Manthey, commodities strategists at ING, in a recent report.
The drop in oil prices has been attributed to a combination of factors, including weakening demand in China, the world’s largest importer of crude oil. Chinese trade data showed a 7% decline in oil imports year-on-year, with the country importing 11.61 million barrels per day. This has led to a cumulative drop in imports of 3.1% so far this year, according to Chinese data.
The bearish sentiment in the oil market has raised concerns among analysts and OPEC+ members, as the market continues to show signs of oversupply. Analysts warn that OPEC+ may need to take action to prevent a potential surplus in 2025.
“In order to soothe the market, the group needs to announce a policy to tackle the expected surplus in 2025,” ING analysts said.
They further cautioned that a more aggressive approach by OPEC+ could lead to a scrapping of output cuts in an effort to outcompete non-OPEC producers, which could push prices down even further. “Even if the group sticks to cuts, compliance is likely to slip,” ING warned. “Lower prices mean lower revenues for OPEC members, and as prices weaken, there will be growing pressure to pump more in an attempt to maintain revenues.”
In the United States, the price decline is also likely to result in lower drilling activity. The Energy Information Administration (EIA) released its latest Short-Term Energy Outlook, projecting that US crude oil output would grow by 420,000 barrels per day in 2025, down from the 460,000 barrels per day forecasted last month.
Meanwhile, OPEC’s latest monthly market report indicated a marginal revision in global demand forecasts but still projected stronger growth than other market predictions. OPEC expects global demand to increase by more than 2 million barrels per day this year and by 1.74 million barrels per day in 2025, figures significantly higher than the International Energy Agency’s (IEA) estimates of 1 million barrels per day growth for the same period.
In addition to crude oil, European natural gas prices also experienced a sharp drop, with TTF gas prices falling 5.49% on Tuesday, bringing them below EUR36/MWh. Market speculators reduced their positions amid a comfortable supply outlook, with storage levels at 93% capacity. However, risks remain, including potential disruptions in Norwegian maintenance and the impact of Hurricane Francine on LNG export facilities along the US Gulf Coast.
As the oil market navigates these uncertain waters, analysts and producers alike are keeping a close eye on future developments to mitigate further losses and stabilize prices.
