Brent crude oil prices have plunged by just under 17 per cent from a peak of US$90 a barrel (bbl) in October to US$75 – the lowest since late July.
Prices spiked after Gaza-based Islamist group Hamas launched an attack against Israel on 7 October, with markets fearing a spillover into other parts of the Middle East potentially resulting in a supply shortage.
This stoked volatility throughout October but prices normalised by the end of the month, easing back to approximately US$82/bbl.
But volatility has resumed a month out from the attack on Israel, with Brent crude oil prices falling by as much as 15 per cent over the past few days.
According to the Commonwealth Bank’s general market research division, the price reversal was triggered by a softening in demand from the world’s largest economies – the United States and China.
“The US Energy Information Administration (EIA) now expects total US petroleum consumption to fall by 300,000 barrels per day (bpd) this year, reversing its previous forecast of a 100,000 bpd increase,” CBA observed.
Ray Attrill, NAB’s head of FX strategy, said the adjustment could be linked to “deepening pessimism” about the global demand outlook.
He referenced remarks from former head of the European Central Bank (ECB) Mario Draghi, who claimed the eurozone would slip into recession by the end of 2023 off the back of higher energy prices.
Meanwhile, Warren Patterson, head of commodities strategy at ING Economics, said this latest dip in crude oil prices will concern the members of the Organization of the Petroleum Exporting Countries (OPEC).
The world’s largest oil exporters, he said, would be wary ahead of an expected supply surplus in the first quarter of 2024 in the absence of an extension to supply cuts from major oil exporter Saudi Arabia.
“Noise from the group, particularly Saudi Arabia will likely grow, given that we are now trading below the Saudi’s fiscal break-even level, a level they have been keen to keep oil above,” he said.
“It is looking very likely that both Saudi Arabia and Russia will extend their additional voluntary cuts through into early next year.
“Although, whether Russia actually sticks to its announced cuts is another story, given that their seaborne crude oil exports have been edging higher in recent months.”
However, ultimately, Mr Patterson expects oil prices to trend higher over the course of 2024.
“While indicators suggest that the market is not as tight as originally expected, the tightness we see in the market next year (particularly 2H24) and the high likelihood of further intervention from OPEC+ (or at least from some of its members) if needed, suggests that significant further downside in the market is limited,” he said.
“We hold onto our forecast for Brent to average US$90/bbl over 2024.”