US Oil Prices Erase 2024 Gains on OPEC Output, Economic Growth Fears

Oil pump jacks in California on Oct. 5, 2022. Robyn Beck /AFP via Getty Images

U.S. crude oil prices erased their 2024 gains and slumped below $70 per barrel on growing supply concerns and waning demand fears.

October West Texas Intermediate (WTI) crude futures have tumbled by as much as 7 percent over two sessions on the New York Mercantile Exchange, sliding to their lowest levels since December 2023. Year to date, the U.S. benchmark is down by about 2.4 percent after rallying by as much as 21 percent this past spring.

In recent days, there have been many factors fueling the crude selloff.

OPEC Delays Production Hike

Following a Sept. 5 virtual meeting, the Organization of Petroleum Exporting Countries (OPEC) and its allies, OPEC+, agreed to delay an oil production increase for October and November after a week of speculation.

The cartel was set to advance with a production increase of around 180,000 barrels per day.

“In recognition of this strengthened resolve and renewed firm commitment, the eight participating countries have agreed to extend their additional voluntary production cuts of 2.2 million barrels per day for two months until the end of November 2024, after which these cuts will be gradually phased out on a monthly basis starting December 1st, 2024,” OPEC said in a statement.

OPEC added that it could further pause or reverse the production hikes when necessary.

Oil markets have endured volatility over the last week, which might have prompted the entity to reconsider its decision.

“Clearly, lingering demand worries outweigh any potential delay in this supply increase. If these reports turn out to be correct, the next key question is how long the group will delay their supply increases,” commodities strategists at ING said.

They said that the worldwide oil balance is likely to turn into a surplus next year, “so continuing cuts into 2025 might make sense.”

Global energy markets will now focus on the OPEC panel’s Joint Ministerial Monitoring Committee meeting on Oct. 2.

Fawad Razaqzada, a market analyst at Forex.com, said that OPEC’s rosy demand outlook “failed to materialize” as China has struggled to achieve solid economic growth and the U.S. economy “has slowed down markedly.” These trends, he noted, have exacerbated investors’ concerns that injecting fresh supply into global energy markets would weigh on prices amid softening demand.

“The fact that recent data shows no signs of any acceleration in import demand in China, Europe or North America points to a situation where the oil market is not going to be as tight as expected a few months ago,” Razaqzada wrote in an analytical note. “The excess supply will need to be worked off either through reduced oil production or a sudden lift in global economic recovery. Neither of these scenarios appear likely or imminent.”

The World’s 2 Largest Economies

Lackluster growth prospects in China, the world’s largest economy and top petroleum importer, have limited oil’s rise this year.

Austrian police officers stand in front of the OPEC headquarters in Vienna on June 3, 2023. Leonhard Foeger/Reuters

Beijing’s manufacturing sector has been stuck in contraction territory since May, while the services industry has slowed. Overall, the second-quarter GDP growth rate slowed to 4.7 percent year over year, easing from the 5.3 percent expansion in the first quarter and missing the consensus estimate of 5.1 percent.

Wall Street was jittery to start the holiday-shortened trading week, with the leading benchmark indexes plunging. This was in reaction to the weaker-than-expected August manufacturing data.

The Institute for Supply Management’s Purchasing Managers’ Index (PMI)—an indicator of the sector’s prevailing direction—fell short of market forecasts and contracted for the fifth consecutive month. Likewise, the S&P Global Manufacturing PMI was below economists’ expectations. Construction spending also dipped by 0.3 percent in July, according to the Census Bureau.

However, energy markets could be tighter than some observers suggest, even with slowing U.S. and Chinese manufacturing trends, says Phil Flynn, an energy strategist at The PRICE Futures Group.

“The supply versus demand currently is still extremely tight, and that should keep inventories relatively tight,” Flynn stated in a daily note. “In fact, the market better be right about a demand slowdown, or we’re really going to squeeze this winter.”

The American Petroleum Institute reported on Sept. 4 that commercial crude inventories declined by 7.4 million barrels for the week ending Aug. 30, higher than the consensus forecast of a 900,000-barrel drawdown.

Additionally, domestic crude oil inventories have tumbled for eight of the past nine weeks.

Problem Solved in Libya?

Meanwhile, a resolution to a dispute in Libya might be imminent. The eastern government in Benghazi, led by warlord Khalifa Haftar, temporarily shut down all oil fields and suspended output and exports last week.

He demanded that the Western faction in Tripoli remove Sadiq al-Kabi, the central bank governor, over a squabble regarding how oil revenues are divided.

About 700,000 barrels per day, or roughly half of the country’s oil production, had been offline. This led to a more than 3 percent rally in crude prices during the Aug. 26 trading session.

“The impact of losing partial exports is limited,” Anas Alhajji, an independent energy expert and managing partner at Energy Outlook Advisor, said after the disruption in a Substack post. “But losing all Libyan exports, which is close to 1.1 mb/d, will have a significant impact on global oil markets.”

Traders quickly shrugged off the situation in North Africa, as Libya’s two legislative bodies agreed on Sept. 3 to jointly select a new central bank chief.

“Libya’s oil production could be getting back to normal,” Flynn noted.

WTI and Brent, the international benchmark for oil prices, extended their weakness during the Sept. 5 trading session.