Energy Oil price currently weakening due to China and oversupply

Crude oil has recently become significantly cheaper. One reason for this is the weakening Chinese economy. In the long term, however, artificial intelligence is also likely to put pressure on the price.

A barrel of Brent Crude oil (159 liters) cost less than 70 dollars until a few days ago. The last time "black gold" was this cheap was at the beginning of May 2023.

The price has recently risen somewhat. Nevertheless, it is still down a good 10 percent since the middle of this year. According to commodity strategists, this price collapse is due to both supply and demand fears.

Since last weekend, the price of oil has been hit particularly hard by fears of weak demand. This was triggered by the latest statistics for China.

The oil processing companies there refined 12.6 million barrels of oil in August. This is 10 percent less than in July and represents a year-on-year decline of 17.5 percent. The last time such a low volume was processed was in August 2022. For commodity strategist Warren Patterson from the Dutch bank ING, this decline is a sign that China could demand less crude oil in the future.

Producers are flooding the market with oil

For the commodity strategists at Dutch bank ABN Amro, led by chief strategist Moutaz Altaghlibi, the weakness in oil prices can also be explained by the current supply situation. Recently, producing countries outside the Opec+ oil alliance led by Saudi Arabia and Russia have increased their production and flooded the market with crude oil. Altaghlibi is referring in particular to the USA, but also to Guyana and Brazil.

At the same time, the producer countries that are members of Opec+ will begin to phase out their voluntary production cuts from October. However, the experts at ABN Amro do not expect a noticeable impact on the supply trend until December and see the production volume of the Opec+ countries increasing by 180,000 barrels per day from then on.

Based on this, they are revising their oil price forecasts under a negative sign. For the fourth quarter of this year, they now expect an average price for a barrel of Brent Crude oil of 73 dollars, compared to 85 dollars previously. Over the course of the coming year, the oil price should then rise steadily back to 80 dollars per barrel.

Julius Baer commodities expert Nobert Rücker has another explanation for the weakness in oil prices. He reports on market speculation that Libya could ramp up production again sooner than expected and thus contribute to the supply overhang. Rücker is also adjusting his three-month and twelve-month forecasts downwards by 2.50 dollars each and now expects crude oil prices of 75 and 70 dollars per barrel respectively.

Revolution thanks to artificial intelligence?

There is also a completely new factor: artificial intelligence (AI). As the US bank Goldman Sachs calculates, this will also put pressure on the oil price in the longer term. In a study, commodities strategist Callum Bruce and his two co-authors assume that the use of artificial intelligence could reduce the cost of exploring new oil deposits by up to 30 percent.

This would reduce production costs by an average of 5 dollars per barrel. Experts are also hoping to make progress in the exploitation of existing oil reserves.

But there is also a flip side to the coin: according to Bruce and his co-authors, artificial intelligence is likely to be accompanied by higher energy consumption. They put this at 2 dollars per barrel in the longer term. The bottom line is that the overall balance would still be negative for the oil price.

However, a falling crude oil price is not in itself a reason for Swiss motorists to be happy. The price of petrol is also influenced by other factors such as freight prices for transportation on the Rhine - which, however, also depend in part on the price of crude oil - or the development of the US dollar.

SDA