Oil Q3 outlook

We expect oil prices to continue bouncing in the same range in Q3 as they did in the second quarter, with potential volatility dependent on the intensity of geopolitical risks and potential signs of an uptick in summer demand.

A weaker economic outlook, along with efficiency improvements and the rise in electric vehicle sales, further dampens oil consumption. Growth will remain heavily concentrated in the non-OECD countries, although China's dominance is gradually weakening.

Global oil demand is projected to reach 104.5 million barrels per day (bpd) in 2024, driven by strong demand for air travel and robust road mobility. In non-OECD countries, crude demand is expected to rise by around 2 million bpd, primarily fuelled by China, the world's largest oil importer, along with other Asian nations.

In early June, OPEC+ agreed to extend production cuts of 3.66 bpd, which were originally scheduled to end this year, to the end of 2025. However, the group plans to gradually unwind the voluntary curbs of 2.2 million bpd monthly from October 2024 to September 2025, with the possibility of pausing or reversing the increases in production if market conditions change.

Looking at technical analysis, $87 acts as a major resistance level for Brent. If the price breaks above that, we could see a bit of a rally, with support around $76-78. For WTI, $70 acts as a major support and $85 as a key resistance point.

Geopolitical risk premium

Ongoing regional tensions in the Middle East have caused oil prices to remain above $80 per barrel. Concerns about the conflict potentially spreading to Lebanon have limited price declines, as it could disrupt Middle East supplies.

GCC oil output shrinking

GCC oil output is now projected to shrink by 2.6% this year, contrary to the 1.3% expansion forecasted three months ago. This significant adjustment is primarily due to Saudi Arabia's production cuts, which are expected to contract oil activities by 5% this year, down from the previously predicted growth of 0.7%.

Oil prices have been trading within a tight range after peaking in March, largely due to ongoing doubts about global demand, particularly as China's recovery stalls. The slowdown in growth, evident in recent data, indicates that oil consumption is returning to its historical trend following several years of post-pandemic volatility.

US stockpiles and government intervention

US oil inventories have shown unexpected increases, putting pressure on prices. In the last week of June, US oil inventories rose by about 0.9 million barrels, contrary to an expected draw of 3 million barrels, after a 2.3-million-barrel addition in mid-June despite the summer travel season.

The Biden administration is prepared to release more oil from the US strategic stockpile to prevent any significant rise in petrol prices this summer, aiming to curb inflation ahead of the November election.

President Biden's top energy advisor, Amos Hochstein, emphasised that current pump prices remain ‘too high for many Americans’ and expressed a desire to reduce them further. He assured that the administration is committed to ensuring ample market supply to keep prices as low as possible for American consumers.

China's economic slowdown may affect prices

China's economic indicators suggest a slowing recovery with signs of weakness in consumption and the real estate sector. As China is the world’s largest oil importer, its economic struggles could affect the oil prices if the demand for oil declines.

In May, industrial production rose by 5.6% year-on-year, below the 6.0% consensus and down from 6.7% in April. Retail sales increased by 3.7% year-on-year, up by 1.4 percentage points but still below the 4.5% market expectation.

Additionally, China’s property sector continues to decline, with property investment falling by 10.1%, marking the largest drop since February 2020.