Crude Oil Demand Drops Sharply, Triggering Crushing Weekly Loss for Oil Prices

Crude oil demand remains weak in China, contributing to a drop in oil prices. Global market outlook remains bearish as China’s economic recovery lags.

Crude oil prices fell on Friday, reflecting ongoing concerns about weak demand, particularly in China, the world’s largest crude importer. The country's economic struggles continue to weigh on the global oil market, causing oil prices to dip. Despite some stabilization in prices earlier in the week, the lack of strong economic catalysts has kept the market under pressure.

Oil Prices and Sluggish Crude Oil Demand in China

Oil prices were lower on Friday, largely due to the ongoing underperformance of crude oil demand in China. Brent crude futures were down by 65 cents, or 0.9%, at $71.91 per barrel, while U.S. West Texas Intermediate (WTI) crude futures dropped 62 cents, or 0.9%, to $68.08. For the week, Brent crude is set to fall 2.7%, and WTI is on track for a 3.3% decline.

The primary cause for concern in the market is China’s persistent economic slowdown, which continues to impact global crude oil demand. Oil refiners in China have processed less crude year-on-year for several months, a trend that highlights the weakness in demand despite some government efforts to stimulate the economy.

Impact of Economic Weakness on Crude Oil Demand

In October, China’s oil refiners processed 4.6% less crude compared to the previous year, marking a seventh consecutive month of reduced output. This drop in activity has been attributed to factory output slowing down and a struggling property sector. Even though there has been some growth in consumer spending, it has not been enough to offset the overall dip in crude oil demand.

“While oil prices have somewhat stabilized around the $71.00 level of support this week, the lack of a concrete bullish catalyst suggests that price recovery remains tepid for now,” said Yeap Jun Rong, a market strategist at IG. This indicates that despite the lower oil prices, the market is struggling to find the necessary boost from crude oil demand.

Global Outlook: Oil Supply Outpaces Crude Oil Demand

Globally, the outlook for oil supply and crude oil demand is starting to lean toward an oversupply situation. The International Energy Agency (IEA) has forecast that global oil supply will exceed demand in 2025, even if OPEC+ cuts remain in place. The agency raised its 2024 demand growth forecast but still expects slower global consumption overall.

Similarly, OPEC has lowered its global oil demand growth forecast for 2024 and 2025, noting continued weakness in key markets like China. This is the fourth consecutive downward revision to its demand outlook for 2024, emphasizing the ongoing challenges in balancing supply and crude oil demand.

U.S. Crude Oil Inventories and Market Sentiment

In the U.S., crude oil inventories increased by 2.1 million barrels last week, according to the Energy Information Administration (EIA). This rise exceeded analysts' expectations, further adding to concerns over the balance between crude oil supply and demand. Despite this, gasoline inventories fell by 4.4 million barrels, reaching their lowest levels since November 2022, while distillate stockpiles also saw a surprising decline of 1.4 million barrels.

These mixed results suggest that while demand for certain refined products like gasoline is still strong, overall crude oil demand faces significant challenges. The increase in inventories points to sluggishness in crude oil consumption, reinforcing the bearish sentiment in the market.

What’s Next for Crude Oil Demand and Prices?

The global outlook for crude oil prices remains uncertain, with weak demand continuing to dominate the market narrative. Crude oil prices will likely remain under pressure until there is a stronger catalyst for price recovery, such as a pickup in demand from China or other major economies. Analysts will be watching closely for any signs of a shift in global crude oil demand, as the market’s future direction depends heavily on the pace of economic recovery in key regions.

With concerns about overproduction and continued weakness in crude oil demand, oil prices could continue to face downward pressure in the short term. The global oil market will likely remain volatile as supply and demand dynamics evolve.