Oil prices dip after Opec cuts demand forecast on China slowdown

The producer alliance lowered oil demand growth forecast for 2024 by 135,000 barrels per day

A supermarket in Beijing. China's economy is facing challenges with a real estate crisis, sluggish consumer spending and a deceleration in manufacturing. AFP

Oil prices fell on Tuesday after Opec lowered its demand growth forecast for this year, citing softening consumption in China.

Brent, the benchmark for two thirds of the world’s oil, was trading 0.66 per cent lower at $81.76 a barrel at 10.39am UAE time.

West Texas Intermediate, the gauge that tracks US crude, was down 0.56 per cent at $79.61 a barrel.

Global oil demand is projected to grow by 2.1 million barrels per day this year, down 135,000 bpd from Opec’s initial forecast, the group said in its monthly oil market report on Monday.

The reduction in the group’s 2024 forecast marks the first adjustment since it was announced in July 2023.

The world’s second-largest economy is facing challenges with a real estate crisis, sluggish consumer spending, and a deceleration in manufacturing.

“This slight revision reflects actual data received for the first quarter and in some cases the second quarter, as well as softening expectations for China’s oil demand growth in 2024,” Opec said.

For 2025, global oil demand growth has been revised slightly down by 65,000 bpd to 1.8 million bpd, the group said.

“Oil prices saw a rebound last week after recession fears eased and a surprisingly large drop in US crude inventories,” said Claudio Galimberti, global market analysis director at Rystad Energy.

“This week, geopolitical turmoil, particularly in the Middle East, is set to drive market volatility and generate a likely upward trend,” Mr Galimberti said in a research note published on Monday.

Tensions in the Middle East have soared following the recent assassinations of Hamas leader Ismail Haniyeh in Iran and Hezbollah military commander Fouad Shukr in Beirut, which have drawn threats of retaliation against Israel.

The US has sent a nuclear submarine and aircraft carrier to the region amid rising tension between Israel and Iran.

“The situation remains tense and highly uncertain,” Mr Galimberti said.

“This week and next will be crucial in determining whether further escalation can be avoided and whether the geopolitical risk premium will significantly affect oil prices,” he added.

Oil prices declined early last week after weaker-than-expected US job figures raised concerns about a potential recession in the world's largest economy.

However, positive US economic data and indications of strong fuel demand in the country have helped ease those concerns.

US Federal Reserve officials have also signalled that they could start cutting interest rates as early as September this year.

The cut is anticipated to be between 25 and 50 basis points, depending on the latest data, Mr Galimberti said.

Despite the unemployment rate rising to 4.3 per cent in July, inflation is still high at 2.97 per cent, exceeding the Fed's target of 2 per cent, he added.