This week, oil markets remained stable with WTI crude futures closing at $68.5 per barrel. Investors were alert to positive economic data from China and the upcoming OPEC+ meeting.
Chinese manufacturing activity is reported to have picked up for the second consecutive month, at a faster pace than in the past five months, indicating a recovery in the world's largest oil importer. At the same time, Saudi Arabia announced a reduction in crude oil prices for Asian buyers starting in January, bringing them to their lowest level in four years.
The OPEC+ meeting that was originally scheduled for this week has been postponed, and further discussions are expected to be required before a decision on increased production is made.
Geopolitical tensions in the Middle East are also impacting the oil market.
Although there has been a ceasefire agreement, Israel has resumed attacks on Lebanon, and Iran is supporting the Syrian government after rebels took control of Aleppo, the country's largest city. In addition, there is concern that Saudi Arabia may increase production if other countries do not do the same to keep prices stable.
The OPEC issue is again at the center of discussions, with some countries trying to gain an advantage by producing more oil than agreed upon.
During a telematic meeting, OPEC representatives blamed Iraq for exceeding its daily production limit of 400,000 barrels in August according to data provided by S&P Global Ratings, and Kazakhstan, which expects to increase production due to the return of the Tengiz oil field to 720,000 barrels per day.
“There is no point in adding new stocks if there is no demand for them in the market,” one of the representatives said during the call. “It is important that all states respect the agreements set by OPEC+ and keep quiet.” In recent months, oil prices have fallen by 9 percent across all major benchmarks.
Despite OPEC+'s efforts to stabilize oil markets, prices continue to fall. Although the group has proposed several extensions of production cuts, this has not prevented prices from falling further. According to IEA data, OPEC's market share has declined to 48 percent this year, down from 50 percent in 2023 and 51 percent in 2022.
Competition is expected to intensify next year, with projected increases in production in the United States, Guyana and Brazil, which could lead to an increase of more than 1 million barrels per day in global supply. Although Brazil joined OPEC+ this year, they have stated that they will not participate in production cuts to maintain their market share.
According to my forecast, we will see oil prices fall to new lows of around $60 in the coming quarters, with a possibility in 2025 of seeing prices even lower than $50 per barrel if a dispute within OPEC occurs.
The crude oil futures curve still shows a contango trend, which means it may be advantageous to consider instruments such as ETFs for long-term investing. However, it is advisable to avoid direct investment in the oil stock sector at present, as the value of the US dollar is strong and prices of companies in the sector are very high.
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