Analysis Energy

Higher demand forecast interrupts oil price decline

July 11, 2024 - Matthijs Bremer

Optimism about the peace talks between Israel and Hamas caused a drop in the oil market this week. However, there are clear signs that this conclusion was drawn a bit too quickly. Later in the week, the decline eased after the American Energy Agency (EIA) revised its forecast for global oil demand upwards.

The price of oil took a step down this week. On Thursday, July 4, oil was traded at $87.43 per barrel. However, on Wednesday, July 10, the price dropped to $84.83.

This week, the market was dominated by the peace talks between Israel and Hamas. Optimistic sounds about a possible deal surfaced regularly, giving the oil market hope that the risks surrounding transports from the Middle East may soon be alleviated. Last week, officials told CNN that the framework of the deal was in place. Meanwhile, leaks from the Israeli camp revealed that Prime Minister Benjamin Netanyahu had authorized negotiations on the details. Over the weekend, news followed that Hamas had made significant concessions.

However, it remains to be seen how the oil price will react if a deal does not materialize. So far, optimism has always come too early, and this time too, a deal is not a certainty. Israel continues to carry out bombings in Gaza. Additionally, Netanyahu stated that one thing is certain: deal or no deal, Israel will continue to fight in Gaza until all the goals of the war are achieved. Even if there is a deal regarding the hostages, Israel does not seem willing to agree to a ceasefire in other words. The state has not abandoned its goal of destroying Hamas.

Higher consumption
On Wednesday, July 10, a higher forecast for global oil demand from the American Energy Agency (EIA) significantly dampened the decline. The increase is limited. In total, the EIA revises the consumption forecast for 2025 from 104.6 million barrels per day to 104.7 million barrels per day. However, the impact of the increase is significant. Whereas the EIA previously foresaw a balanced situation, the agency now concludes that there will be a slight shortage next year.

In the second half of 2024, the energy agency already predicted a shortage. Until recently, the EIA estimated this shortage at 550,000 barrels per day. The agency has now revised that shortage to 750,000 barrels per day. Due to the larger shortage, the agency has raised its price forecast from $84 per barrel to $89 per barrel. However, there is an important nuance in the story. The EIA indicates that from the third quarter of 2025, a surplus of oil could also arise again if OPEC+ chooses to reverse the lower production targets.

The price of diesel dropped this week along with the oil price. On Thursday, July 4, diesel was traded at €131.47 per 100 liters. By Wednesday, July 10, the price had fallen to €129.14.

Matthijs Bremer

Matthijs Bremer is a market specialist in pork, beef, and poultry meat at DCA Market Intelligence. He also monitors the protein transition, keeping an eye on developments in cultured meat and meat substitutes.

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