Oil Prices Dip Amid Demand Concerns

Oil prices saw a decline in early US trading as signs of weaker demand raised worries about a potential supply surplus, overshadowing the possible impact of Tropical Storm Francine on US oil production.

As of 2:30 p.m. EST, West Texas Intermediate crude futures dropped 4.3% to settle at $65.75 per barrel, while Brent oil futures for November fell 3.7% to $69.19 a barrel.

OPEC Lowers Demand Outlook Again

In its monthly report released Tuesday, OPEC revised down its global oil demand growth forecast for 2024. The cartel now predicts an increase of 2.03 million barrels per day (bpd), down from the previous estimate of 2.11 million bpd. This marks the second consecutive month of downward revisions.

The largest contributor to this change comes from China, where demand growth is expected to reach 650,000 bpd in 2024, a decline from the earlier 700,000 bpd forecast, amid ongoing economic struggles in the world's second-largest economy.

OPEC noted that while China's economic growth remains well supported, issues in the real estate sector and an increased shift towards liquefied natural gas (LNG) and electric vehicles might reduce demand for conventional fuels like diesel and gasoline.

This reduced outlook presents ongoing challenges for OPEC+, which comprises OPEC and its allies including Russia, in managing the oil market. Recently, OPEC+ deferred plans to boost output after prices plummeted to their lowest levels so far this year.

Tropical Storm Francine to Impact Gulf of Mexico

In other news, several oil companies have halted production and refining operations in the Gulf of Mexico as Tropical Storm Francine approaches the US mid-South. The storm may strengthen into a hurricane before making landfall, bringing heavy rain and strong winds to the Texas and Louisiana coasts.

Francine's impact could result in significant disruptions to crude supplies in North America, leading to a tighter short-term outlook in oil markets.

U.S. Crude Inventory Data Upcoming

Attention will also be on upcoming domestic crude inventory data, with the American Petroleum Institute set to release its weekly petroleum report later today. Economists anticipate a build of 700,000 barrels in crude stocks for the week ending September 6.

This report comes just a day before official data from the Energy Information Administration is due out.

Scott Kanowsky and Ambar Warrick contributed to this report.