Affected by the declining outlook for crude oil demand, following a 4.81% drop in WTI crude oil futures prices on October 14th, crude oil prices continued to fall on October 15th, touching a low of $69.71 per barrel at one point; Brent crude prices also fell by more than 5% during the trading session, dropping below $73 per barrel.

As of 17:00 on October 16th, Brent crude futures were temporarily reported at $73.77 per barrel, and New York crude futures were reported at $69.87 per barrel. Guangda Futures analyst Du Bingqin stated that although the geopolitical situation in the Middle East is becoming increasingly complex, according to the latest news, Israel may not target Iran's crude oil facilities, which has alleviated market concerns about a reduction in supply. In addition, the latest data from Libya, which had recently experienced supply disruptions, shows that its crude oil production has quickly recovered to 1.13 million barrels per day.

Crude oil suppliers took the opportunity to short sell.

"After Iran fired hundreds of missiles at Israel in retaliation, the global market has been worried that Israel will launch a more fierce counterattack. As a result, Brent crude oil quickly rose from a low of $69 to $81 on October 7th in the following week. However, the fierce retaliation claimed by Israel has not been fulfilled since then." Zhongzhou Futures energy analyst Zheng Sixiao said.

It is worth noting that there have been persistent rumors that the United States has been dissuading Israel from retaliatory strikes on Iran's nuclear or oil facilities. According to media reports, Israel has assured the White House that it will not target Iran's nuclear or oil facilities. Because Iran has claimed that if Israel does not retaliate, this round of attacks has already ended. Zheng Sixiao said that if Israel only attacks Iran's military facilities, it is considered a move to cool down the situation. Therefore, the crisis of geopolitical risk was temporarily lifted, and as a result, oil prices gave back most of the gains accumulated earlier due to geopolitical tensions.

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ING Group commodity strategist Warren Peterson also believes that given that oil production has not been affected after nearly a year of conflict, the market may become increasingly numb to the tensions in the region. The focus remains on Iran; if the country engages in more direct confrontation with Israel or the United States, market attention will more clearly shift towards the prospect of supply disruptions. At the same time, OPEC has a large amount of spare production capacity, which also brings some comfort to the market.

As crude oil prices continue to fall, some industry insiders have said that do the current crude oil short positions have a certain advantage? In this regard, Zheng Sixiao said that from the position holding perspective, as of October 12th, the net position of U.S. crude oil futures contracts was still long, but the proportion of total positions has been declining for three consecutive weeks, and the net position of producers has also continued to decline. However, the situation of Brent crude futures contracts is different, with fund management net positions increasing by 123,000 hands, and producer net positions increasing by 77,000 net short positions.

"In comparison, Brent's situation more reflects the global perspective. Against the backdrop of increasingly intense geopolitical conflicts, funds are bullish, while producers take the opportunity to hedge. However, these data are already a week behind and cannot keep up with the rapid changes in the current crude oil market. Therefore, it is not recommended for investors to make strategies based on position holding. The position holding data that is a week behind can be used to verify previous strategies, but cannot be used as a basis for new positions." Zheng Sixiao said.

Global crude oil demand growth slows down.

On October 15th, the International Energy Agency released a monthly report, lowering the global oil demand growth forecast for 2024, revising the 2024 global oil demand growth forecast to 860,000 barrels per day, compared to the previous forecast of 900,000 barrels per day; at the same time, the monthly report raised the 2025 global oil demand growth forecast to 1 million barrels per day, compared to the previous forecast of 950,000 barrels per day.The IEA's report indicates that OPEC's spare production capacity is at a historical high. Global oil demand growth is slowing down, and ample supply offsets the geopolitical risks faced by oil production. In the absence of significant disruptions, the oil market is expected to show a considerable supply surplus in the new year. In response, Zheng SiXiao stated that OPEC's production this year has been very stable, with the latest OPEC monthly report showing production levels of 26.6 million, 26.6 million, and 26.5 million barrels per day for the first three quarters, respectively. The production levels for OPEC+ were 41.2 million, 40.9 million, and 40.6 million barrels per day for the same periods.

Furthermore, as of October 2024, OPEC+ has no new plans for production cuts and will continue to reduce the amount of cuts (meaning an increase in production) in December according to the previous plan. In 2025, they will gradually cancel the previous cuts and return to the baseline production. However, Zheng SiXiao noted that the plan is not set in stone, as evidenced by OPEC's decision in early August, amidst oil price turbulence, to postpone the exit plan from production cuts by two months, from October to December. Therefore, the exit plan will not be disturbed if oil prices remain stable or rise; if oil prices drop sharply, the plan may still be temporarily altered.

In the meantime, regarding the United States' production capacity, Du BingQin mentioned that due to the impact of hurricanes, U.S. crude oil production slightly declined in the third quarter but still remained high. As of now, U.S. crude oil production is around 13.2 million barrels per day. In the first half of this year, capital expenditure by U.S. shale oil companies decreased slightly year-on-year. Despite high oil prices, the high costs brought about by high inflation and the demand for dividends have led to cautious investment意愿 from companies.

"Looking at the number of drilling rigs, there has been no significant increase in the number of new drilling and inventory wells in the U.S. this year. What supports the high level of U.S. crude oil production is the improvement in the single-well yield of new drilling. From the current number of inventory wells, it is not sufficient to support further growth in U.S. crude oil production within the year. Therefore, we maintain a conservative attitude towards U.S. crude oil production," Du BingQin said.

Additionally, from the demand side, Du BingQin stated that this week, the U.S. Energy Information Administration, the International Energy Agency, and OPEC successively released their latest monthly reports, in which both the IEA and OPEC have下调ed the global oil demand growth forecast for three consecutive months. The IEA expects global oil demand to grow by 8.62 million barrels per day in 2024, a reduction of 410,000 barrels compared to the September report. OPEC, in its latest monthly report,下调ed its forecast for global oil demand growth this year by 110,000 barrels to 1.93 million barrels per day, a larger reduction than the IEA's report. Concerns about demand remain one of the main factors driving current international oil prices.

On October 14, OPEC published the latest monthly report data,下调ing the global crude oil demand data for 2024 and 2025 by 100,000 barrels per day each, expecting a year-on-year increase in demand of 1.93 million barrels per day this year and 1.64 million barrels per day next year. Zheng SiXiao stated that this is the third consecutive下调by OPEC since August and September, and even the most optimistic of the three agencies, OPEC, has made such a forecast, indicating the expectations for demand this year and in the future.

Will crude oil continue to fall?

As international oil prices continue to fluctuate, Du BingQin said that in the fourth quarter, potential changes in U.S. energy policy in November need to be monitored. Moreover, after several rounds of production cuts, OPEC+'s market share has currently dropped to less than 50%, with remaining production capacity exceeding 6 million barrels per day. According to IMF calculations, for oil-producing countries, their average fiscal break-even oil price is around $70-75 per barrel. After the current oil price has broken through the cost range, OPEC+'s desire to increase production and seize market share is more prominent, and the magnitude and pace of its production increase starting in December are worth paying attention to.

Regarding the later trend of international oil prices, Du BingQin said that from the balance sheet perspective, the International Energy Agency (IEA) expects that starting from the fourth quarter of this year, the global crude oil market will shift to a situation where supply exceeds demand, with the supply-demand gap changing from -620,000 barrels per day to a slight surplus of 100,000 barrels per day. With OPEC+ gradually increasing production and limited demand growth under the impact of new energy, the situation of oversupply next year may further deepen.

"Furthermore, against the backdrop of recent macroeconomic sentiment improvement and geopolitical disturbances in the Middle East, there are signs of a certain rebound in international crude oil prices. It is expected that short-term oil price fluctuations will still be large, but the sustainability of geopolitical premiums remains to be observed. Conventionally, the fourth quarter is the off-season for crude oil market demand, and if there is no unexpected supply and demand data support, international crude oil prices will fall," Du BingQin said.Citigroup released a research report last month stating that if OPEC+ does not continue to deepen production cuts, in a pessimistic scenario, oil prices could fall to $50 per barrel next year. In the latest report published this week, the bank maintained its baseline forecast for Brent crude oil prices at $74 per barrel for the fourth quarter of 2024 and $65 per barrel for the first quarter of 2025, as well as the pessimistic scenario for the oil market when OPEC+ begins to increase production.

Regarding the later trend of crude oil prices, Zheng Sixiao said that it is expected that oil prices will decline in the fourth quarter, and the probability of hitting a new low since the Russia-Ukraine conflict (Brent at $68) is very high. Against the backdrop of a fundamental supply-exceeding-demand situation, the biggest risk is a short-term rapid surge caused by geopolitical conflicts. Therefore, it is recommended that investors mainly adopt a bearish mindset, control their positions well, or use options to protect at key points, as each surge caused by geopolitics may be an opportunity to lay out at higher levels.