Will International Oil Prices Face Increasing Downward Pressure?

[Asia Economy Reporter Song Hwajeong] Recently, oil prices have been on a downward trend amid forecasts of weakened international oil demand due to the spread of the COVID-19 Delta variant. Kiwoom Securities expects that there will be no significant changes in the supply and demand conditions of the crude oil market within the year and forecasts a gradual rise in oil prices throughout the year.

On the 13th (local time) at the New York Mercantile Exchange, the September West Texas Intermediate (WTI) crude oil price fell 65 cents (0.94%) from the previous session to $68.44 per barrel.

According to Kiwoom Securities, the U.S. Energy Information Administration (EIA), the Organization of the Petroleum Exporting Countries (OPEC), and the International Energy Agency (IEA) presented somewhat mixed forecasts for demand recovery in the second half of the year due to uncertainties caused by the spread of the Delta variant in their August energy outlook reports. While the EIA and OPEC maintained their existing 2021 demand growth forecasts, the IEA slightly lowered its forecast from 5.4 million barrels per day to 5.3 million barrels per day. The IEA cited the spread of COVID-19 in some regions such as Asia and the resulting movement restrictions as factors likely to limit crude oil demand recovery. However, it maintained the outlook that crude oil demand would recover to pre-COVID-19 levels by the end of 2022.

On the supply side, OPEC slightly raised its forecasts for oil supply increases from non-OPEC countries in 2021 and 2022, reflecting recent agreements on production cuts among OPEC+ (OPEC member countries and non-OPEC allies). Both the EIA and OPEC slightly revised upward their U.S. production forecasts, but there was no significant change in the moderate recovery trend.

Recently, international oil prices have shown weakness amid increased volatility due to the spread of COVID-19 variants. In particular, concerns over oil demand recovery intensified as the possibility of lockdowns increased due to the spread of COVID-19 in China, causing oil prices to plunge sharply. However, it is expected that there will be no major changes in the tight supply and demand conditions of the crude oil market within the year. Kiwoom Securities analyst Shim Subin explained, "Although the possibility of strengthened movement restrictions by countries due to the spread of the COVID-19 Delta variant may slow demand recovery in the short term, the ongoing COVID-19 vaccination efforts will sustain the demand recovery trend. OPEC also believes that the current spread of COVID-19 is being controlled through vaccinations and improved treatments, and that crude oil demand will steadily increase."

Regarding supply, it is expected that the gradual production increase policy of OPEC+ will make a sharp rise in supply within the year unlikely. The EIA also lowered its 2021 production forecast for OPEC+ countries in this report, considering the mid-July agreement among OPEC+ producers. Analyst Shim said, "Considering this, in the short term, oil prices may fall below $70 per barrel due to uncertainties related to the spread of the Delta variant and the end of the U.S. driving season in September, which will increase volatility. However, since the tight supply and demand conditions will not change significantly, a gradual rise in oil prices is expected to continue throughout the year."

This content was produced with the assistance of AI translation services.