The primary driver of last week's decline was China's sluggish economic performance. The world's largest oil importer reported disappointing third-quarter growth data, highlighting a slowdown in refinery output, which has now declined for six consecutive months. With refining margins narrowing and domestic fuel consumption remaining weak, demand for crude oil has softened, eroding market confidence. Furthermore, China's rapid adoption of electric vehicles (EVs) continues to pressure the country's oil consumption, with EV sales surging 42% year-on-year in August.
This slowdown in demand has had a profound impact on global oil prices. Both the Organization of the Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA) have downgraded their oil demand forecasts for 2024. OPEC, in particular, cut its estimate for China's demand growth from 650,000 barrels per day (bpd) to 580,000 bpd.
Another factor contributing to the decline in oil prices was the easing of geopolitical tensions in the Middle East. Reports indicated that Israel may refrain from targeting Iran's oil infrastructure, which helped remove the "war premium" previously factored into oil prices. Although concerns over potential supply disruptions persist due to ongoing conflict between Israel and Hezbollah, the immediate threat of significant supply constraints seems to have diminished for now.
On the supply side, U.S. crude oil production continues to rise, reaching a record 13.5 million bpd last week. While this increase in supply has helped prevent further price drops, recent U.S. Energy Information Administration (EIA) data showing declines in crude oil and gasoline inventories offered some temporary support. However, the overall bearish trend persisted as demand concerns outweighed these positive developments.
Looking ahead, the market is expected to remain under pressure. China's economic slowdown, coupled with OPEC and IEA's lowered demand forecasts, points to further downside risks for crude oil. Prices could test critical support levels, with targets as low as $63.46 if bearish momentum continues. Traders should remain cautious, keeping an eye on developments in the Middle East and U.S. economic data, which may provide brief price relief, though sustained recovery seems unlikely in the near term.