Brent Crude Slumps Amid Global Economic Woes, Demand Uncertainty Looms

Petroleum Price

• Brent crude hit its lowest level in nearly a year and a half, driven by concerns over the global economy, despite a decision by some oil-exporting countries in the OPEC+ alliance to delay production increases.
• Energy prices saw a significant drop on Friday evening, with Brent crude falling to USD 71.07 per barrel, down 2.23 percent. West Texas Intermediate (WTI) crude also decreased by 2.26 percent, reaching USD 67.59 per barrel.
• Similarly, NYMEX crude saw a decline, dropping to USD 67.28 per barrel, a 2.97 percent decrease, shedding USD 2.06 from its value. Natural gas prices dipped slightly, falling to USD 2.25150, down 0.31 percent, losing USD 0.007 in value.
• These declines come amid market volatility and reduced global energy demand.

Petroleum Demand and Supply

• The data alone might lead some to the misleading conclusion that President George W. Bush, often seen as pro-oil, was bad for drilling.
• Meanwhile, President Obama, who wasn't exactly known as a friend to the oil industry, turned out to be the best of these presidents when it came to drilling. However, this data needs context.
• If you were to overlay oil prices on this data, it would show that higher oil prices typically lead to increased drilling. However, the story is not just about prices but also about technological advancements.
• Today, oil companies can extract far more oil per rig than they could in 2001. Even though the rig count declined sharply after its peak under Obama, U.S. oil production continued to set records year after year. Last year saw the highest oil production in U.S. history, and we are on pace to top that this year.
• In the decade before Bush became president, oil prices averaged about $20 per barrel. Oil production in the U.S. had been declining for 30 years. That was the environment for oil companies in 2001.

Petroleum News

• The rig count during President George W. Bush's tenure was influenced by factors such as steady growth in Chinese oil demand and a slow response from Saudi Arabia to increase production, leading to fears of shortages and eventually a bubble in oil prices.
• That bubble burst in 2008 with the recession, causing a drop in global oil demand. As a result, drilling activity sharply declined during President Obama's first year, though this drop had more to do with the recession and the oil price crash than with a change in administration.
• During Obama's presidency, oil prices initially rose as the economy recovered, driven by the same factors that had pushed prices up under Bush.
• However, technological innovations like hydraulic fracturing and horizontal drilling began reversing the long decline in U.S. oil production and would ultimately force OPEC to react.
• Oil prices averaged close to $100 per barrel from 2011 to 2014, leading to record drilling activity. But Saudi Arabia initiated a price war in late 2014, aiming to reclaim market share lost to U.S. shale oil.
• That price war — which I called OPEC's Trillion Dollar Miscalculation — ultimately crashed oil prices to below $30 per barrel. Gasoline prices also sharply fell during that period. In response to low prices, the rig count plummeted in Obama's last two years.

Expert Opinion

• Goldman Sachs has lowered its crude oil forecast for 2025, expecting prices to average $80 per barrel with a range between $70 and $85. This revision reflects expectations of lower demand and increased inventories. In the short term, the market has already reacted, leading to a nearly 7% drop in oil prices.
• However, there are potential upward pressures on prices due to geopolitical unrest in the Middle East, particularly tensions between Israel and Iran. This could escalate, potentially driving prices higher. Furthermore, with the possibility of a colder winter due to the transition from El Niño to La Niña, demand for fuel may increase, especially as producers are likely to cut back on production during this period, suggesting that prices could rise in the medium term.