The oil market is experiencing bearish trends as global economic conditions soften, a development that is stirring concern among industry watchers. The recent policy decisions by OPEC plus have only added to the uncertainty, as the organization has announced the phasing out of voluntary production cuts amounting to 2.2 million barrels per day from October 2024 to September 2025. This move, aimed at balancing market stability with increased production, has triggered a significant selloff in crude oil prices.
On Monday, following the announcement, WTI crude saw a 3.6% decline while Brent Crude dropped by 3.39%, reaching levels not seen in the past four months. The market’s reaction underscores the delicate balance OPEC plus must maintain between supporting prices and meeting the production needs of its member countries. The group’s strategy appears to be twofold: reassuring markets of their commitment to price stability through sustained production cuts while also gradually increasing output in response to market conditions.
OPEC plus currently maintains production cuts of approximately 5.8 million barrels per day, representing about 6% of global supplies. However, recent data suggests compliance issues within the group, with Iraq and the UAE reportedly exceeding their quotas by 458,000 barrels per day. Iraq, in particular, shows no signs of compensating for this overproduction, raising concerns about the group’s overall compliance.
At the same time, non-OPEC producers, especially from the U.S., Canada, Brazil, and Guyana, are expected to ramp up their output, potentially adding around 1.4 million barrels per day in 2024 and 2025. This anticipated increase in supply from non-OPEC countries is likely to exert further downward pressure on prices. Additionally, crude oil and end product stockpiles have been on the rise, providing a cushion against immediate price spikes but also contributing to the bearish sentiment.
Risk premiums in the oil market have been de-escalating, leading to a 12% correction in prices over the past two months. This trend has been closely linked to weaker economic indicators from key markets. The official Chinese PMI for the manufacturing sector indicated a contraction, and similar trends have been observed in the Eurozone’s manufacturing data. In the U.S., the ISM manufacturing index has been in contraction for two consecutive months, with the May figure at 48.7, down from 49.2 in April, and new orders dropping significantly.
Given these developments, the outlook for the oil market appears bearish in the short to medium term. Prices could test support levels around $70 per barrel, although there may be some recovery driven by seasonal factors such as strong U.S. summer gasoline demand and potential disruptions from an active hurricane season. Analysts project that WTI crude oil prices could average around $80 per barrel in the third quarter of 2024, potentially rising to $85 per barrel by the end of the year if economic conditions improve.
In the technical arena, WTI crude oil for July has a support range of $72 to $70 and resistance between $76 and $78. For the MCX crude in June, the support level is 5900, with resistance at 6500.
As the global economic landscape continues to evolve, the oil market will be closely monitored for signs of further shifts. The interplay between production levels, compliance among OPEC plus members, and the broader economic environment will be critical in determining the future direction of oil prices. The industry remains on edge, awaiting clearer signals that could either confirm the bearish trend or hint at a possible recovery.