Oil prices steady amid divergent OPEC and IEA demand projections Oil prices steady amid divergent OPEC and IEA demand projections Oil prices steady amid divergent OPEC and IEA demand projections

Oil prices steady amid divergent OPEC and IEA demand projections

Commodities 5 minutes to read
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.

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.


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.

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