Despite rising tensions in the Middle East, crude prices are still lower than they were a month ago. Sure, there has been a rebound since the September 10 bottom, but it’s remarkable how crude prices are struggling in the current environment, raising questions about the future of Oil prices.
There have been a series of situations that would otherwise have gotten the oil bulls cheering. But growth in the black gold has been slow, suggesting that there are broader issues with the market. With the major predictors of the oil market in disagreement, there is more room for volatility in prices, particularly in the short term.
Growth, But There are Doubts
On Tuesday, OPEC released its medium to long-term projections for the oil market, raising demand outlook from here to 2050. The cartel cited improved growth outlook in India and Africa as reasons for there to be more interest in buying crude. Additionally, they expect the adoption of electric vehicles to take longer than initially anticipated.
The report contradicts what the IAE had said earlier in the year, which saw demand peaking soon. Both agree that demand will increase in the short-term, but the IAE believes demand will fall off much faster than OPEC does. The divide in the outlook between the two oil institutes has been growing, as the price of crude has been on the backfoot since April of this year, raising concerns about the Future of Oil Prices.
It’s the Now that Matters
Markets, however, seem to be focused more on the near-term. Crude prices jumped earlier this month after China announced the largest package of stimulus for the economy since the pandemic. But it quickly reversed those gains and is trading down for the week, as investors worry that the stimulus will not be sustained.
China is the largest importer of crude, so its lackluster economic growth (relative to the pre-pandemic era) plays a major role in price outlook. But the world’s largest consumer seems to be facing troubles as well. The recent rate cut by the Fed was greeted with hesitant applause, as it would also mean stimulus for the economy. But given the labor data, many analysts are worried that the shift towards easing could be a sign that the US economy will slow down in the coming months.
A Settling Down in the Trends
The US economy was reported growing at a 3.0% annualized pace in the second quarter, but the consensus among economists is that US GDP growth will slow to 2.2% annualized in the third quarter. That rate is expected to slow even further in the final quarter of the year to 2.0%. That is assuming the “soft landing” scenario, and the recent recession indicators are wrong. The slowing demand would likely keep downward pressure on crude, even if demand would be higher in the coming years, influencing the Future of Oil Prices.
On the other hand, there was a recent report from the IMF suggesting that major crude producing countries need much higher oil prices to meet their financial obligations. All of the Persian Gulf nations are forecast to see their finances fall into the red this year, unless oil prices rise toward the $90/bbl level. Which means measures to curtail production in an effort to elevate prices might continue for longer, and at the very least keep a floor for crude.