The oil market is expected to undergo a significant correction in the fourth quarter of 2024, primarily driven by increasing supply and demand imbalances, according to analysts at Macquarie in a note released on Monday.
While oil prices have been rebounding from previous lows, the underlying fundamentals suggest that the market is heading towards a downturn. The forecast hinges on an anticipated rise in oil production from key regions worldwide. As output ramps up, it is projected to outstrip demand, leading to a surplus that is likely to put downward pressure on prices.
Even though the global economy shows signs of recovery, demand for oil remains relatively weak, especially when compared to the increasing supply. This imbalance is expected to become more pronounced as the year progresses.
Moreover, global oil inventories are likely to grow as supply consistently exceeds consumption. Historically, such inventory builds have been a clear indicator of impending price declines, as they reflect an oversupplied market struggling to maintain balance.
Although geopolitical factors often support oil prices, Macquarie notes that the current geopolitical environment does not pose enough risk to counter the growing supply and demand imbalances.
In the absence of significant geopolitical disruptions, the market fundamentals are expected to prevail, pushing prices lower.
“Ultimately, we anticipate a correction in 4Q24 as supply and demand surpluses increase,” the analysts stated. As supply surpluses become more apparent and demand remains subdued, the market is expected to retrace its recent gains.
The correction could deepen as the market adjusts to these new dynamics, potentially leading to a prolonged period of lower prices.
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