oil oil oil

Oil prices steady amid divergent OPEC and IEA demand projections

Commodities 5 minutes to read
Picture of Ole Hansen
Ole Hansen

Head of Commodity Strategy

Key points

  • Crude oil continues to trade within a narrowing range, with the current price not far from the averaged seen since April 2 last year when OPEC+ announced the first of several production cuts

  • Prices have recently bounced from an early June price slump that was driven by aggressive hedge funds selling after the OPEC+ alliance announcing plans to gradually unwind last year’s extra voluntary output cuts, starting October

  • Hedge funds longs in WTI and Brent have only been this weak twice in the last twelve years, raising the risk of a rebound. 


Crude oil continues to trade within a narrowing range, and since April 2 last year when OPEC+ announced the first of several production cuts, the price of Brent crude has been averaging around USD 82.70 per barrel, not far from current levels. It highlights how production restraint by OPEC+ has helped deliver a period of stable prices, most likely at lower levels than originally anticipated by the group, many of which need prices closer to and above USD 90 per barrel in order to balance their budgets.

13olh_oil1
Source: Saxo

During the past week, prices have bounced following an early June price slump that was driven by aggressive hedge funds selling amid fading geopolitical risks and the OPEC+ alliance announcing plans to gradually unwind last year’s extra voluntary output cuts, starting October, but contingent on prevailing market conditions. In recent months, lacklustre demand and strong non-OPEC+ supply have prevented the market from tightening to the point supply could be added back into the market.

This past week monthly oil market reports from OPEC and the International Energy Agency highlighted a widening gap in their respective outlooks for 2024 and 2025 demand growth. While OPEC stubbornly has held onto an expected increase around 2.2 million barrels per day this year, the IEA has continued to downgrade its forecast, currently below 1 million barrels per day amid continued slowdowns in key markets, most notably OECD where exceptional gasoil weakness reflects challenging industrial conditions. The agency expects the subdued outlook will be carried forward into 2025 with a modest increase of 1 mb/d reflecting lacklustre economic growth, an expanding EV fleet and vehicle efficiency gains.

OPEC meanwhile maintained forecasts for strengthening oil demand in the second half amid continued economic growth in China and other emerging economies, saying the OPEC+ alliance will need to pump 2.7 mb/d more in the third quarter, thereby leaving ample room for the announced roll back of production cuts. It is however very clear that the direction of crude oil prices in the coming months will very much depend on which forecast is the correct one. With half the year gone already it is quite extraordinary to see such a wide gap between two organisations that should have the same amount of data and information available.

 

13olh_oil2

Weeks of price weakness, as the geopolitical risk premium deflated and the Q2 demand outlook slowed more than expected following an exceptional strong first quarter, helped drive a hedge fund exodus out of long positions in WTI and not least Brent. It culminated in the week to June 4, following the OPEC+ production increase announcement, when the net long in Brent futures collapsed to a ten-year low at just 46k contracts (46 million barrels). Adding WTI, the combined net long slumped below 200k contracts, a level below which we have only seen twice in the last 12 years: in 2020 during the pandemic and last December just before Houthis began attacking ships in the Red Sea.

While history is no guarantee of what may happen next, we have on previous occasions when positioning was this low, seen a strong counter move. Whether a repeat is possible very much depends on whether the IEA or OPEC are correct regarding the short-term demand outlook. We do, however, expect a seasonal pick-up in demand, not only towards increased mobility during the summer holiday months, but also increased demand for cooling as heatwaves ravage across the Middle East, Asia and southern parts of Europe.

13olh_oil3

Recent commodity articles:

10 June 2024: COT: Brent long cut to ten-year low; metals left exposed to end of week slump
3 June 2024: COT: Crude length added before OPEC+ meeting; gold and copper see profit-taking
31 May 2024: 
Commodity weekly: Strong month despite late decline in crude and fuel
27 May 2024: 
COT: Gold and crude see increased demand as dollar longs plummet
24 May 2024: 
Commodity weekly: agriculture surges, metals fall on fading rate cut hopes
23 May 2024: 
Podcast: 2024 is heavy metals
22 May 2024: 
Crude oil struggles near two-month low
17 May 2024: 
Commodity weekly: Metals lead broad gains 
16 May 2024: 
Gold and silver rally as soft US data fuels market optimism
15 May 2024: 
Copper soars to record high, platinum breaks out
14 May 2024: 
COT: Crude long slump; grain purchases surge
8 May 2024: 
Fund selling exacerbates softening crude outlook
8 May 2024: 
Grains see bumpy start to 2024 crop year
6 May 2024: 
COT: Commodities correction spurs muted selling response
3 May 2024: 
Commodity weekly: Grains boost, correction in softs and energy
2 May 2024: 
Copper's momentum-fueled rally halts amid weakening fundamentals
29 April 2024: 
COT: Gold bulls stand firm despite recent correction
26 April 2024: 
Commodity weekly: Sticky inflation and adverse weather focus
23 April 2024:
 What drives the gold and silver correction ?
22 April 2024: 
COT: Declining momentum may signal shift toward consolidation
19 April 2024: 
Commodity weekly focus on copper, gold, crude and diesel
17 April 2024: 
Copper rally extends to near two year high
16 April 2024: 
Crude oil's risk premium ebbs and flows
15 April 2024:
COT: Hedge funds propel multiple commodities positions beyond one-year highs
12 April 2024: 
Gold and silver surge at odds with other market developments
10 April 2024: 
Record breaking gold highlights silver and platinum's potential
8 April 2024:
COT: Speculative interest in metals and energy gain momentum
5 April 2024: 
Commodity market sees broad gains, enjoying best week in nine months 
4 April 2024: 
What's next as gold reaches USD 2,300
3 April 2024: 
Q2 Outlook: Is the correction over?
3 April 2024: 
Cocoa: A 50% farmgate price boost a step in the right direction
2 Apr 2024:
COT: Gold and crude longs maintained amid strong underlying support

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • 350x200 peter

    Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • 350x200 althea

    Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • 350x200 peter

    Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • 350x200 charu (1)

    FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • 350x200 ole

    Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15
2900
Hellerup
Denmark

Contact Saxo

Select region

International
International

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.