At the APPEC conference in Singapore, the sentiment among oil executives, traders, and investors is predominantly bearish. Oil prices have plummeted since early July, shedding all gains made this year. Brent futures closed on Friday at $71.06 per barrel, a level not seen since December 2021.

Industry analysts anticipate that oil prices will stabilize around the mid $70’s unless demand weakens further (Morgan Stanley). Trafigura’s Head of Oil does not rule out the possibility of Brent prices dropping to $60s in the short term. April’s peak price of >$91 per barrel is now a distant memory.
Brent futures have been declining since early July, driven by concerns over economic performance in China and the U.S., the world’s top oil consumers. Additionally, the rising crude production in the U.S. and outside OPEC+ has reduced supply pressure on the global market thereby making it more difficult to control prices. The delayed increase in OPEC+ production, combined with a nearly 7m barrel weekly drop in U.S. crude inventories (EIA), has not been enough to lift prices. According to the IEA, even if OPEC+ maintains production limits into 2025, a surplus is expected due to substantial production from the U.S., Guyana, Brazil, and Canada.

Demand for oil products in major consuming regions has also been underwhelming, contributing to the downward pressure on both crude and product fundamentals. In Asia, the Chinese and Indian diesel markets — which drive the majority of regional demand — are showing signs of a slowdown. China’s demand for diesel is contracting, whilst in India, consumption growth has stalled (Bloomberg News). This weakening demand for diesel significantly impacts oil prices because diesel represents the largest share of products derived from a barrel of oil. This trend mirrors the situation in Europe, where diesel futures hit their lowest level since mid-2023 last week.

Gasoil Brent Crack, the primary European benchmark for middle distillates, has been declining since the start of the month, with the term structure of the forward curve showing a deepening contango, as illustrated in the chart below.

Jet fuel demand is also struggling to support prices: the aviation sector is heading into its seasonal slowdown, and post-pandemic growth in jet fuel consumption is cooling, with annual growth rates expected to decelerate (IATA). The gasoline market also contributes to the bearish outlook. U.S. gasoline demand, the largest market globally, was disappointing over the summer, and U.S. gasoline stocks have rebounded from their low in November to more robust levels. Gasoline is the second-largest product derived from a barrel of oil, and lower gasoline demand can directly affect oil prices. As demand remains weak, supply is set to increase with the long-awaited ramp up of Nigeria’s Dangote refinery, which has recently begun filling tanks with gasoline (Bloomberg).

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