Oil prices fell again on Tuesday, dropping more than 3% after oil alliance OPEC cut its forecast for demand growth in 2024 and 2025.
West Texas Intermediate (CL=F) fell about 4% on Tuesday to close at $65.75 a barrel, while Brent (BZ=F) also fell more than 3% to close at $69.19 a barrel, its lowest level since December 2021.
In its monthly report, OPEC said it expects oil demand growth to increase by about 2.0 million barrels per day in 2024, 80,000 barrels less than its previous estimate. The oil alliance also slightly lowered its growth forecast for 2025.
China was one of the main drivers of the downgrade. The country is facing economic headwinds amid a housing crisis. The country has also increasingly turned to natural gas, which is cheaper and seen as cleaner than oil, as part of its energy transition.
“Diesel demand was dampened by weak manufacturing, construction and freight activities, as well as LNG penetration [liquified natural gas] trucks, reducing demand for transport diesel,” the report said.
Despite the revision, the oil alliance’s expectations are still higher than other industry estimates.
“OPEC+ has simply been too optimistic with their demand growth forecasts, which are almost twice as high as the EIA or IEA estimates,” Andy Lipow, president of Lipow Oil Associates, told Yahoo Finance on Tuesday.
“The revision of their growth expectations is simply a recognition of the current supply-demand dynamics,” he added.
Wall Street analysts have become more pessimistic about crude oil and have lowered their price targets for the commodity, partly due to weak demand from China.
Increasing signs of economic crisis in the US and Europe, where the summer season is coming to an end, are also having a depressing effect on prices.
Last week, OPEC+ postponed the reversal of some voluntary production cuts originally planned for October.
The US Energy Information Administration expects Brent crude prices to rise in its monthly outlook as OPEC+ production cuts mean less oil is being produced globally than is being consumed.
“We expect the spot price for Brent crude oil to average $82 per barrel in the fourth quarter of 2024 and $84 per barrel on average in 2025,” the report said.
The drop in oil prices has also led to a sharp drop in gas prices in the US, with at least one analyst predicting that the national average price will fall to $3 by the end of the year, or sooner.
On Monday, traders assessed the potential impact of Tropical Storm Francine on oil and gas prices as it moves toward Texas and Louisiana.
Lipow expects minimal impact despite increasing winds. The storm is expected to reach hurricane status as early as Tuesday.
“Other than a flood/storm surge event, I don’t foresee this storm having a significant impact on supply or pricing. Consumers are getting their gas,” the analyst said in a recent note.
Crude oil prices are hovering around their lowest levels since 2024. In recent weeks, futures have wiped out all of the gains made over the past year.
WTI is down about 5% year to date, hovering near year lows. Brent crude is down about 8% over the same period.
Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on X on @ines_ferre.
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