Oil prices remain volatile amid geopolitical tensions

Global supply and demand trends

In the second quarter of 2024, global oil demand grew by 870,000 barrels per day (kb/d), although a slowdown in China held back growth. Demand is expected to grow by less than 1 million barrels per day (mb/d) in 2024 and 2025, a significant slowdown from last year's robust growth of 2.1 mb/d. This slowdown is due to the macroeconomic challenges and geopolitical factors discussed above that limit the pace of demand expansion.

On the supply side, global oil production rose by 230 kb/d in July to reach 103.4 mb/d, driven by a significant increase by OPEC+ members, which offset losses by non-OPEC+ producers. While non-OPEC+ production is expected to rise by 1.5 mb/d in 2024 and 2025, OPEC+ production could decline in 2024 but recover if voluntary production cuts remain in place.

These supply and demand trends have a direct impact on oil prices, which exhibit significant volatility. Despite escalating geopolitical tensions in the Middle East, the recent $6 per barrel drop in July Brent crude futures underscores the impact of weak macroeconomic data on market sentiment. Even though oil supply remains tight in certain regions such as the Atlantic Basin and global inventories are volatile, overall market sentiment is driven by broader economic conditions.

Despite falling, unchanged prices, the stability of front-month time spreads points to a complex interplay between supply constraints and demand uncertainties. With Brent crude oil priced at around $80 per barrel, the balance between rising global supply, especially from non-OPEC+ countries, and subdued demand growth will continue to be a key driver of oil prices going forward.

Consolidation of the oil market

The price dynamics can be understood by looking at the monthly chart for Brent crude oil discussed earlier. It can be observed that prices have been very volatile within the red channel. The formation of a symmetrical triangle within the channel indicates that prices are declining in a sideways market before the next strong move.

Previously, prices broke out of a symmetrical broadening wedge in August 2014 and traded lower. However, the low at $15.98 during the COVID-19 crisis in 2020 marked a reversal to the upside. Currently, price momentum is moving within the symmetrical broadening pattern, suggesting that prices are likely to remain in the $70-$90 range before the next move, which depends on the breakout patterns.