Gas prices drop as crude oil hits lowest levels since 2021
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Brent Crude crashed below US$70 per barrel last week, and the U.S. benchmark, West Texas Intermediate (WTI), fell below US$66 a barrel last Tuesday as both benchmarks settled at a nearly three-year low – at their lowest level since December 2021. For a change, the drop was evident at the gas stations all around, bringing a sigh of relief to consumers.
However, prices recovered slightly when Hurricane Francine disrupted production in the U.S. Gulf of Mexico. On Thursday, Brent crude futures rose by 34 cents, or 0.5 percent, to $72.31 per barrel, and U.S. WTI crude futures increased by 39 cents, or 0.6 percent, to $69.36 a barrel.
By the end of the week, as crude production resumed in the U.S. Gulf and data showed a rise in the U.S. rig count, prices gave up some of the earlier gains. Brent crude settled at $71.61 a barrel, down 36 cents (0.5 percent), while WTI closed at $68.65 a barrel, down 32 cents (0.5 percent).
But oil markets continue to face pressure.
Investor sentiment remains pessimistic. Julianne Geiger, quoting Eric Nuttall in Oilprice.com, underlined that financial demand for oil, or “net length,” has fallen to its lowest point in history. “Net length” refers to the difference between investors betting on rising oil prices (long positions) and those betting on falling prices (short positions).
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For the first time, Geiger noted, the paper market for Brent crude is “net short,” meaning more investors expect prices to fall than rise—a rare occurrence because it’s rare to see such pessimism in the market, especially as global oil inventories are depleting by about a million barrels per day (bpd).
Weak global oil demand, particularly from China, has weighed heavily on prices in recent months. Both OPEC and the International Energy Agency (IEA) recently lowered their demand growth forecasts, citing economic struggles in China, as Jillian Ambrose reported in a recent piece.
In its Monthly Oil Report last Tuesday, the Organization of Petroleum Exporting Countries (OPEC) cut its 2024 forecast for global oil demand growth to 2.03 million bpd, down from the 2.11 million bpd predicted the previous month. OPEC also downgraded its expectations for 2025, marking the second consecutive downward revision. China was responsible for much of this downgrade, with OPEC reducing its forecast for Chinese growth from 700,000 bpd to 650,000 bpd for 2024.
For 2025, OPEC lowered its global oil demand growth estimate to 1.74 million bpd from the 1.78 million bpd projected in the previous report.
The Paris-based International Energy Agency (IEA) continues to paint an even bleaker outlook. In its latest Monthly Oil Report, the agency stated that global oil demand grew by just 800,000 bpd in the first half of this year, the smallest increase since 2020 and less than half of last year’s growth during the same period. The IEA emphasized that “with the steam seemingly running out of Chinese oil demand growth, and only modest increases or declines in most other countries, current trends reinforce our expectation that global demand will plateau by the end of this decade.”
OPEC continues to contest this projection, but the growing number of electric vehicles (EVs) in China and North America is already impacting global oil demand, as the transportation sector remains the largest consumer of crude.
In response, oil producers are looking to petrochemical production for future demand growth, particularly in Asia, where rising living standards could drive increased consumption. However, environmental concerns cast doubt on the long-term sustainability of these expectations.
Interesting times indeed for the oil markets and the oil producers.
Toronto-based Rashid Husain Syed is a highly-regarded analyst specializing in energy and politics, with a particular emphasis on the Middle East. Besides his contributions to both local and international newspapers, Rashid frequently lends his expertise as a speaker at global conferences. His insights on global energy matters have been sought after by organizations such as the Department of Energy in Washington and the International Energy Agency in Paris.
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