On the 14th, international oil prices fell by more than 2%. The oil-producing countries' organization OPEC+ downgraded its demand growth forecast in the latest market monthly report, offsetting the boost brought by China's stimulus plan and the Federal Reserve's interest rate cut, once again triggering market concerns.

At the same time, the outside world is also continuously paying attention to the tense situation in the Middle East. The trend of geopolitical premiums and the future prospects of OPEC+ production increases will complicate market pricing.

Demand-side pressures are mounting

As the most optimistic organization among the three major organizations about the oil market, OPEC+ downgraded its forecast for global oil demand growth in 2024 in the September market monthly report. The data for next year has also been revised downward, marking the third consecutive similar adjustment made by this group of producing countries.

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OPEC+ stated that global oil demand will increase by 1.93 million barrels per day in 2024, lower than the 2.03 million barrels per day in August. For the main consumer country, China, the organization expects that government stimulus measures will support demand in the fourth quarter, but oil use is facing more regional economic challenges and resistance to shifting to cleaner fuels. The demand growth forecast for 2025 was revised down from 1.74 million barrels per day to 1.64 million barrels per day.

It is worth noting that before this, the U.S. Energy Information Administration (EIA) and the International Energy Agency (IEA) respectively lowered their estimates of global oil consumption in the fourth quarter by 140,000 barrels per day and 200,000 barrels per day. Later this week, the IEA will also update its monthly market report, and it is expected to further lower its outlook forecast.

As the Federal Reserve began to cut interest rates, a new round of global easing cycle was launched. In addition to easing price pressures, the cooling of economic momentum is also a reason that cannot be ignored for the shift in monetary policy. EIA data shows that U.S. commercial crude oil inventories increased by 5.81 million barrels last week, indicating that the excess production of refineries to some extent offset the increase in demand. At the same time, despite the decline in gasoline inventories, the overall market demand for gasoline remains weak after the traditional summer driving season.

This week, the European Central Bank will hold an interest rate meeting, and it is expected to cut interest rates by 25 basis points. The latest data shows that business indicators represented by the eurozone PMI continue to be weak, and growth may once again fall into a stall. The German federal government expects that the regional economic locomotive's gross domestic product (GDP) will decrease by 0.2% this year. Serious structural issues such as a shortage of skilled workers and insufficient infrastructure investment have hindered the country's economic growth.

Crude oil broker PVM Oil Associates Senior Market Analyst Tamas Varga said in an interview with First Financial that the long-term factors determining market trends are divided into demand and supply. The development situation of major economies is the most critical issue on the demand side. Although there are some differences in external views, he believes that the implementation of stimulus policies is expected to boost China's economic growth and the re-release of demand, while the challenges faced by the eurozone may not be able to be solved in the short term.

Geopolitical premiums and OPEC+ production increasesSince October, international oil prices have once surged by nearly 13%, with the market concerned that Israel's retaliation against Iranian missile strikes could trigger a broader conflict, potentially threatening the flow of crude oil in the Middle East.

Undercurrents are stirring in the derivatives market. In the week ending October 8th, Brent crude oil net long positions have increased from a low of 41 million barrels last month to 165 million barrels. Iran is the third-largest crude oil producer in OPEC, following Saudi Arabia and Iraq, accounting for 12% of the world's total reserves. Industry statistics show that Iran's oil production rose to a six-year high of 3.7 million barrels per day in August, with exports reaching 1.8 million barrels per day. The Hargeisa Island is now widely regarded by the outside world as a target for Israeli retaliation. Most of Iran's crude oil exports are conducted through the Hargeisa Island, located in the northeastern part of the Persian Gulf. Should Israel launch an attack, it could deal a devastating blow to Iran's economy.

Varga told Yicai that an attack on Iranian oil facilities or a disruption of traffic in the Strait of Hormuz would severely disrupt the supply and demand situation, pushing oil prices to break through $90. This is undoubtedly bad news for central banks that are just beginning to pivot, as the impact of energy inflation over the past two years has been profound. He believes that as the election approaches, the United States will strive to cool down the situation, including a package of new sanctions.

Varga told Yicai that if the regional situation does not escalate further, the geopolitical premium will gradually narrow, and OPEC+'s gradual release of production capacity will pose a new round of tests for the market. At the ministerial meeting earlier this month, OPEC+ decided to increase supply by 180,000 barrels per day from December, gradually ending this round of production cuts.

ING Group commodity strategist Peterson believes that given the conflict that has lasted nearly a year, oil production has not been affected, and the market may become increasingly numb to the tensions in the region. "The focus remains on Iran; if the country engages in more direct confrontation with Israel or the United States, market attention will more clearly turn to the prospect of supply disruptions. Meanwhile, OPEC has a large amount of idle production capacity, which also brings some comfort to the market," he wrote.

Citi warned last month that if OPEC+ does not continue to increase production cuts, in a pessimistic scenario, oil prices could fall to $50 next year. In the latest report released this week, the bank maintained its baseline forecast of $74 per barrel for Brent crude oil in the fourth quarter of 2024 and $65 per barrel in the first quarter of 2025, as well as the pessimistic scenario for the oil market when OPEC+ begins to increase production.