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Analysis Energy

Oil prices down, but not for long

11 July 2024 - Matthijs Bremer

The oil price fell this week on optimism about the peace talks between Israel and Hamas. Although there are clear signals that the market is once again very much ahead of the facts. The decline was slowed sharply on Wednesday, July 10, after the American Energy Agency (EIA) increased its forecast for global oil demand.

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The price of oil took a step down this week. On Thursday, July 4, oil traded at $87,43 per barrel. However, on Wednesday, July 10, the price fell to $84,83.

This week the mark focused on the peace talks between Israel and Hamas. This week, optimistic reports about a possible deal emerged regularly, giving the oil market hope that the risks surrounding transports from the Middle East will soon no longer be an issue. Last week, officials told CNN that the skeleton of the deal was in place. Meanwhile, it was leaked from the Israeli camp that Prime Minister Benjamin Netanyahu had given permission to negotiate the details. This was followed at the weekend by the news that Hamas had promised major compromises.

Still, the question remains what the oil price will do if there is no deal. Until now, optimism has always come too soon and this time too a deal is not a certainty. For example, Israel is still bombing Gaza. In addition, Netanyahu indicated that one thing is certain: deal or no deal, Israel will continue to fight in Gaza until all goals of the war have been achieved. In other words, even if there is a deal on the hostages, Israel appears unwilling to agree to a ceasefire. After all, the state has not yet abandoned its goal of destroying Hamas.

Higher consumption
On Wednesday, July 10, a higher forecast for global oil demand from the US Energy Agency (EIA) significantly dampened the decline. The increase itself is limited. In total, the EIA adjusts the consumption forecast for 2025 from 104,6 barrels of oil per day to 104,7 million barrels per day. Yet the effect of the increase is significant. While the EIA previously predicted a situation of balance, the agency now comes to the conclusion that there will be a slight deficit next year.

The energy agency already predicted that a shortage would arise for the second half of 2024. Until recently, the EIA estimated that deficit at 550.000 barrels per day. The agency has now adjusted that deficit to 750.000 barrels per day. The wider shortage prompted the agency to revise its price forecast upwards from $84 per barrel to $89 per barrel. Although there is also an important nuance in the story. The EIA expects that an oil surplus could arise again from the third quarter of 2025, if OPEC+ chooses to reverse the lower production targets.

The price of diesel fell this week along with the oil price. On Thursday, July 4, diesel traded for €131,47 per 100 liters. On Wednesday, July 10, the price had dropped to €129,14.

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