Fundamentals to drive oil correction in Q4 as supply/demand surpluses increase: Ma

Investing.com — The market is poised for a significant correction in the fourth quarter of 2024, driven primarily by increasing supply/demand surpluses. While oil prices have been recovering from previous lows, the fundamentals suggest that the market is headed for a downturn, as per analysts from Macquarie in a note dated Monday. 

The core of this forecast is rooted in the anticipated rise in production from key regions around the world. As output ramps up, it is projected to outpace demand, creating a surplus that will likely exert downward pressure on prices. 

Despite the global economy showing signs of recovery, demand for oil remains tepid, especially when compared to the growing supply. This imbalance is expected to become more pronounced as we move closer to year-end.

Adding to this, global oil inventories are likely to swell as supply consistently exceeds consumption. Historically, such inventory builds have been a clear signal of impending price declines, as they reflect an oversupplied market struggling to find balance.

While geopolitical factors often play a role in supporting oil prices, Macquarie suggests that the current geopolitical landscape does not offer sufficient risk to counterbalance the growing supply/demand imbalances. 

Without significant geopolitical disruptions, the fundamentals are expected to dominate, driving prices lower.

“Ultimately, we anticipate correction in 4Q24 as S/D surpluses increase,” the analysts said. As supply surpluses become more evident and demand remains sluggish, the market is expected to retrace its recent gains. 

The correction could deepen further as the market adjusts to these new dynamics, potentially leading to a sustained period of lower prices.