As a critical resource in the globaleconomy, oil is integral not only to the energy sector but also to industriessuch as transportation, manufacturing, and agriculture. Changes in its pricesimpact inflation rates, production costs, and global trade. For instance, oilprice increases can accelerate global inflation. This effect ripples throughvarious sectors, with higher transportation and production costs driving upprices for goods and services worldwide. Kar Yong Ang, a financial marketanalyst at Octa Broker, deciphers current oil market trends, elucidating theeconomic and trading implications for market participants to consider.
Current state of the oil market
In 2024, the global oil market faces an intricate balance of supply anddemand, with production hovering around 101.5 millionbarrels per day,closely mirroring daily consumption. OPEC+, primarily responding to concernsover weak demand due to slowing economic growth in major markets, recentlyimplemented production cuts aimed at reducing volatility. Unlike previousmeasures driven by supply shortages, this strategic adjustment seeks tostabilise prices amid shifts in market sentiment and to offset demanduncertainties from countries like China. Furthermore, sanctions affectingRussian oil exports have introduced additional market opacity due to shadow fleetoperations.
Macroeconomic activity in major oil consumers, including the U.S. andChina, continues to drive global demand trends. Studies suggest a 1% global GDPrise generally correlates with an approximate 0.8% increase in oildemand,underscoring how economic performance directly influences energy consumption.In recent months, U.S. demand has shown a moderate decline due to inflation and highinterest rates, which have impacted consumer spending. China’s demand has beentempered by a stabilising growth rate, signalling a softening in oil demandfrom Asia's largest economy.
Last autumn price peaks have given way to a more recent stabilisation,with oil prices now ranging between $70 and $75 perbarrel. As ofmiddle November 2024, Brent crude was trading around $71.97, while West TexasIntermediate (WTI) stood at $68.04 per barrel. This recent dip from theprevious week reflects the market’s sensitivity to both demand forecasts andongoing geopolitical factors.
Which factors affect the oilmarket?
Politicaltensions in oil-producing regions play a significant role in shaping global oilprices. For example, recent sanctions on Russia have limited its oil exportcapabilities, impacting around 4 million barrels per day, or roughly 5% of globalsupply.Additionally, production cuts by OPEC+ have introduced further supplyrestrictions to stabilise prices. Such geopolitical decisions highlight theimportance of political stability in the oil sector.
Inthe U.S., recent political shifts could lead to policy changes impactingdomestic oil production. Donald Trump’s re-election signals a potential returnto deregulation, favouring domestic production growth. His prior administrationexpanded U.S. oil output to a record high of 13 million barrelsper day in 2019,and similar policies could drive further supply increases. Higher U.S.production, however, could introduce more supply into the global market, likelyexerting downward pressure on prices and potentially increasing marketvolatility.
Technologicaladvancements and a shift towards renewable energy are gradually reducing thereliance on traditional oil. The International Energy Agency (IEA) projectsthat by 2040, renewable sources could meet over 40% of globalenergy demand, ascountries aim to cut carbon emissions in line with climate goals. Despite theseshifts, oil is expected to remain essential for sectors like aviation and heavymanufacturing, although overall demand may see a decline in the coming decades.
Future prospects of the oilmarket
OPEC+production decisions, global economic recovery trends, and seasonal demandpatterns will likely influence short-term oil market dynamics. Seasonal heatingdemand during the winter months typically drivesprices upward,especially in colder regions. Emerging markets, particularly in Asia, areanticipated to see steady growth in oil demand as industrial activity expands.This short-term demand increase could provide upwardpressure on prices,balancing out some of the recent supply constraints.
Inthe long term, the oil market faces a transformative shift as renewable energyadoption accelerates. With governments worldwide investing heavily insustainable energy infrastructure, global oil demand is projected to declinegradually over the next two decades. According to the IEA, global oilconsumption could decrease by as much as 25% by 2040 as electric vehicle adoption andgreen technology become mainstream. This energy transition poses bothchallenges and opportunities for the oil sector, requiring adaptation toshifting consumer demands.
Trump’svictory could significantly influence oil market dynamics through policies thatfavour the oil and gas sector. His administration previously prioritised energyindependence, implementing deregulation policies that boosted domesticproduction. A return to such policies could lead to increased U.S. output,potentially intensifying competition in the global market and affecting pricestability.Additionally, shifts in foreign policy could reshape trade relations with majoroil-producing nations, impacting global oil flows.
Oilremains a critical asset within the global economy, influencing inflation,production costs, and economic stability. At the same time, the asset's priceis affected by geopolitical stability, OPEC decisions, technological advances,environmental policies, global supply and demand, as well as the US dollarstrength since the price of oil is commonly denominated in US dollars. Tradersand investors should monitor these factors to be aware of recent market trendsand to be able to identify potential price movements more carefully.
About Octa
Octa is aninternational broker that has been providing online trading services worldwidesince 2011. It offers commission-free access to financial markets and a varietyof services used by clients from 180 countries who have opened more than 52million trading accounts. To help its clients reach their investment goals,Octa offers free educational webinars, articles, and analytical tools.
The company is involved in a comprehensive network of charitableand humanitarian initiatives, including the improvement of educationalinfrastructure and short-notice relief projects supporting local communities.
Since its foundation, Octa has won more than 70 awards, includingthe ‘Best Forex Broker 2023’ award from AllForexRating and the ‘Best MobileTrading Platform 2024’ award from Global Brand Magazine.
