Oil prices decline amid increased production, weaker demand

By Duygu Alhan

ANKARA (AA) – Oil prices fell on Tuesday, pressured by rising production and weaker demand data from OPEC. However, the losses were mitigated by ongoing geopolitical tensions in the Israel-Palestine and Russia-Ukraine conflicts.

International benchmark Brent crude dropped 0.5% to $81.89 per barrel at 10:58 a.m. local time (0758 GMT), down from the previous session's close of $82.30. U.S. benchmark West Texas Intermediate (WTI) fell 0.4% to $79.71 per barrel, after closing at $80.06 in the prior session.

Both benchmarks saw declines following OPEC's latest monthly report, which forecasted an increase in production for the latter half of the year. The report indicated a rise of 185,000 barrels per day (bpd) in crude output for July, bringing total production to 26.74 million bpd. This increase, coupled with concerns over potential oversupply, put downward pressure on prices.

Additionally, the global oil demand growth forecast for 2024 was revised down by 135,000 bpd from the previous month’s assessment. Total world oil demand is now expected to reach 104.3 million bpd in 2024, supported by actual data from the first and second quarters of this year and tempered expectations for China's oil demand growth.

The combined effect of increased production and reduced demand forecasts has exerted downward pressure on oil prices. However, uncertainty surrounding the U.S. Federal Reserve's potential interest rate cut in September continues to influence the market. Financial markets currently estimate a 57% probability of a 50 basis point reduction, though this could shift with upcoming inflation data.

Geopolitical tensions in the Middle East and Russia are limiting further price declines. On Monday evening, an Israeli airstrike on a residential home in Khan Younis, southern Gaza Strip, resulted in the deaths of ten Palestinians, including women and children. Additional fatalities were reported throughout the day due to Israeli airstrikes and bombings across the Gaza Strip, though exact numbers have yet to be confirmed.

Concerns about potential disruptions to global oil supply from the region, which holds a majority of the world's oil reserves, are supporting upward price movements. Additionally, the escalation of supply concerns due to the Ukraine-Russia conflict is contributing to crude price support.

The Russian Ministry of Defense announced on Monday the organization of comprehensive logistical support for military personnel engaged in repelling incursions by the Ukrainian Armed Forces (UAF) in the Kursk region. This support includes additional forces, equipment, and supplies critical for ongoing operations, according to a statement from the ministry.