Introduction to OPEC and Global Oil Market
The Organization of the Petroleum Exporting Countries (OPEC) expects global oil demand to grow over the next two years, driven by economic expansion worldwide. However, oil prices in the futures market have been under pressure and falling.
OPEC’s Outlook for Oil Demand
According to OPEC’s December report, the world’s oil demand is projected to rise in 2025 and 2026, primarily due to the growth of non-Organisation for Economic Co-operation and Development (OECD) nations.
- Non-OECD countries are expected to increase their oil demand by 1.2 million barrels per day in both years, serving as the main driver of global growth.
- China and India are key contributors to this demand increase, with China’s growth fueled by petrochemical products and aviation fuel (jet kerosene), while India’s demand is expected to rise due to increased economic activity and fuel consumption.
Price Trends in November 2021
In November, the average oil price dipped, with OPEC’s reference basket falling by 74 cents to average $64.4 per barrel.
Similarly, the West Texas Intermediate (WTI) price decreased by 59 cents to average $59.4 per barrel, indicating a downward trend due to increased crude oil reserves in the United States and higher production.
Market Sentiment and Fundamentals
OPEC highlighted that the general sentiment among hedge funds and other money managers in November was overwhelmingly bearish, reinforcing the downward pressure on oil futures.
This bearishness was reflected in lower geopolitical risk premiums and uncertainty surrounding supply and demand dynamics.
Despite the bearish speculative activity, OPEC noted that short-term physical market fundamentals remained supportive due to relatively low commercial inventory levels reported by the OECD.
Expert Analysis
Diego Sebastián Albuja, an analyst at ATFX Latam brokerage, pointed out that oil prices have been on a downward trend and reached levels not seen in over three years.
- WTI fell below $55 per barrel since February 2021, while Brent dropped below $60 per barrel, hitting lows since May.
- These price movements reflect a shift in the global energy market balance, according to Albuja.
Albuja explained that the decline is directly linked to rising expectations of an oil supply surplus.
- Increased production from OPEC+ and sustained growth in US oil supply contrast with moderate demand advancements amidst a global economic slowdown and cautious energy consumption.
- Furthermore, the reduction in geopolitical premiums due to recent signals of a potential de-escalation in the Russia-Ukraine conflict has led the market to discount less disruptive supply scenarios, thereby removing one of the key supports that have sustained crude oil prices in recent years.
Key Questions and Answers
- What is OPEC and why is its outlook important?
OPEC is an intergovernmental organization of 13 nations invested in the stabilization of oil markets. Its outlook is crucial as it provides insights into global oil demand and supply dynamics, influencing prices and market stability.
- Which countries are driving oil demand growth?
Non-OECD nations, particularly China and India, are expected to significantly contribute to oil demand growth due to economic expansion and increased fuel consumption.
- Why are oil prices falling despite expected demand growth?
Oil prices are under pressure due to increased supply expectations, higher US production, and a global economic slowdown that has led to cautious energy consumption.
- How have geopolitical factors impacted oil prices?
Reduced geopolitical risk premiums, driven by signals of potential de-escalation in conflicts like Russia-Ukraine, have contributed to lower oil prices by discounting less disruptive supply scenarios.
