Oil Sinks To 2021 Lows As Demand Fears Skyrocket

Only a major improvement in China's economics could boost sentiment, say analysts: File Image/Pixabay

Brent futures on Tuesday sank below $70 per barrel for the first time since December 2021, as demand fears escalated on OPEC lowering expectations for 2024 and 2025.

In its latest monthly report, the Organization for the Petroleum Exporting Countries predicted global demand would rise by 2.03 million barrels per day (bpd) this year, down from last month's growth forecast of 2.11 million bpd; this was the first change made to the cartel's forecasts since July 2023.

OPEC also cut its 2025 global demand growth estimate to 1.74 million bpd from 1.78 million bpd.

As a result and as of 1616 GMT, Brent plummeted $2.61, or 3.6 percent, at $69.23 per barrel, while West Texas Intermediate plunged $2.85, or 4.1 percent, to $65.86.

Contributing to bearish sentiment was Monday's news that consumer inflation in China accelerated in August while domestic demand remained fragile and producer price deflation worsened.

Clay Seigle, an oil market strategist, said, "Fiscal stimulus in China has not boosted the construction sector; that's one big reason Chinese demand for diesel is shrinking."

Major Wall Street banks have already cut their forecasts of China's GDP growth to below the official Chinese target of around 5 percent growth this year, and analysts point out that improving Chinese demand is vital in turning around the exceptionally bearish sentiment for oil.

Another remarkable aspect of Tuesday's trading was that the downward spiral seemed impervious to news that tropical storm Francine crossing the Gulf of Mexico was on track to become a hurricane, causing Exxon Mobil and other energy giants to halt some of their oil and gas facilities.

John Kilduff, founding partner at Again Capital, noted, "We have a hurricane bearing down in the Gulf and we are still selling off hard here."

Bloomberg analysts pointed out that Brent's newest contract "is now trading just a few cents higher than supplies for 2031; a year ago, the price difference … was more than $20 a barrel."

They went on to explain that "The decline is due in part to an expected glut in the market next year, but also a shift in trading dynamics, amplifying a slump that has pushed oil to its lowest price since 2021."