The Organization of the Petroleum Exporting Countries (OPEC) has revised down its oil demand growth forecast in its latest monthly oil market report, sparking market concerns. At the same time, the tense situation in the Middle East continues to attract attention, and future crude oil market volatility may intensify.

Demand expectations decline hits market sentiment

On October 14th local time, OPEC released its monthly oil market report, revising down the expectations for global oil demand in 2024 and 2025. This is the third consecutive time OPEC has revised down its global oil demand expectations for this year and next year.

According to the report, OPEC adjusted its expectation for the global average daily oil demand growth in 2024 from 2.03 million barrels to 1.93 million barrels compared to the previous year, with the adjusted annual average daily oil demand expected to be 104 million barrels. OPEC stated that this adjustment is based on the actual data received by the organization and the downward revision of expectations for oil demand in some regions. The adjusted expectation for the global average daily oil demand growth in 2024 compared to the previous year is still far higher than the historical average of 1.4 million barrels before the COVID-19 pandemic.

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OPEC also revised down its expectation for the global average daily oil demand growth in 2025 from 1.74 million barrels to 1.64 million barrels compared to the previous year, with the adjusted annual average daily oil demand expected to be 106 million barrels.

OPEC's latest monthly report also led most crude oil futures traders to start believing in the "oversupply" view of oil proposed by Wall Street giants such as Goldman Sachs and Morgan Stanley - that is, starting from 2025, the oil market will see a continuous situation where supply exceeds demand, leading to sustained weakness in crude oil prices.

Affected by this news, market sentiment was under pressure. As of the close on the 14th, the price of light crude oil futures for delivery in November at the New York Mercantile Exchange fell by $1.73, closing at $73.83 per barrel, a decrease of 2.29%; the price of Brent crude oil futures for delivery in December fell by $1.58, closing at $77.46 per barrel, a decrease of 2.0%.

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

According to Reuters, as OPEC has revised down its overall oil demand expectations for three consecutive times, it has finally begun to abandon the strong bullish attitude it has held since the beginning of this year. "The decline in demand is indeed worrying, indicating that future oil prices will continue to weaken," said Peter Cardillo, an analyst at Spartan Capital Securities, in a statement.

In early September, OPEC issued a statement saying that eight OPEC and non-OPEC oil-producing countries decided to extend the voluntary production reduction measures of 2.2 million barrels per day, which were originally due to expire at the end of the month, until the end of November. Starting from December, the reduction measures will be gradually withdrawn month by month, but the pace of withdrawal will be flexibly grasped according to market conditions.Middle East Tensions Raise the Risk of Rising Oil Prices

The situation in the Middle East has recently heated up rapidly, with growing concerns in the global market about the disruption of oil supplies, causing international oil prices to soar. Although the relatively weak global market demand has partially curbed the rise in oil prices, uncertainties in the supply chain and geopolitical risks continue to support the prices.

Due to market concerns that Israel might launch airstrikes on Iranian oil facilities, international oil prices have risen accordingly. On the 7th, the Brent crude oil futures price in the North Sea of the UK broke the $80 per barrel mark for the first time since August. Iran is a significant global oil producer and controls the critical oil transportation channel, the Strait of Hormuz. If conflicts continue to escalate and block this passage, major Eurasian oil-importing countries will have to seek alternative supplies, which will further drive up global oil prices.

Citi analysts, including Francesco Martoccia, stated in a report on the 14th that they have raised the expected price in the bullish scenario for Brent crude oil for this quarter and the next from $80 to $120 per barrel. The probability of the bullish scenario being realized has increased from 10% to 20%. Citi said that due to the potential weakness in the oil market fundamentals, the base scenario for the fourth quarter and the first quarter of next year maintains the oil price expectations at $74 and $65 per barrel, respectively, with a 60% probability of realization; the bearish scenario expects oil prices of $60 and $55 for the fourth quarter and the first quarter of next year, respectively.

Should supply disruptions lead to a shortage, oil prices may first rise to a level sufficient to suppress demand and then begin to fall. Once crude oil prices reach $130 per barrel, close to the historical high in 2022, it will trigger "demand destruction."

Although the global economy's dependence on Middle Eastern oil is not as high as in the past, and global oil demand is relatively weak, severe supply disruptions can still lead to increased energy prices and intensified inflation, causing shockwaves in the global economy. Professor Hrvoje Krasic from the University of Zagreb in Croatia stated that if a larger-scale conflict occurs in the Middle East, oil prices will inevitably rise significantly, and the European economy will suffer substantial losses. With weak economic growth in Europe, rising energy prices will inevitably increase the risk of falling into growth stagnation, and inflation will rebound and rise.

Tamas Varga, a senior market analyst at crude oil broker PVM Oil Associates, said that an attack on Iranian oil facilities or the 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 shift their monetary policy, as the impact of energy inflation over the past two years has been profound.

Crude Oil Market Volatility May Intensify

Currently, there are analyses pointing out that although oil prices have fallen back, the complex and changeable situation in the Middle East may still lead to significant fluctuations in international oil prices.

According to a report by CNBC, Daniel Yergin, Vice Chairman of S&P Global and an energy expert, said that due to the continuous escalation of tensions in the Middle East, the global economy is entering an unprecedented special period. Bjarne Schieldrop, Chief Commodity Analyst at Sweden's Nordea Bank, said that if the situation worsens and the Strait of Hormuz is closed for a month or longer, Brent crude oil prices could soar to very high levels, and the world economy would be in trouble.However, Robbie Fraser, a global commodities analyst at Schneider Electric, stated that while geopolitical risks have pushed oil prices above $70 per barrel, concerns about demand continue to limit further increases in oil prices, and the global economic environment still suppresses oil prices.

Research reports recently released by Morgan Stanley and Goldman Sachs both show that it is expected that after the end of 2024 or the beginning of 2025, the entire oil market may shift from a slightly tight supply-demand balance to a potential surplus. Goldman Sachs even predicts that Brent crude oil trading prices may fall to a low point of $61 per barrel during this period.

Analysts believe that the supply and demand sides of the oil market are still in a game. The supply side still has good news in the short term, and there is an expectation of tightening oil supplies. Coupled with the start of the winter heating season, energy demand will increase, so the possibility of a significant drop in oil prices in the short term is not great. The demand side is the main driver suppressing oil prices. The global economy is showing a trend of slowing down and facing increasing pressure from recession, which may be the main factor constraining oil prices in the medium and long term. Overall, the crude oil market will intensify fluctuations against the backdrop of increasing supply and demand games.