What’s Putting Crude Oil Prices Under Pressure?
At a Glance
Crude oil prices fell sharply in late August and early September. Does this mean that oil is a bargain?
The answer is complex. For starters, OPEC+ has taken 3.6 million barrels per day off of the market over the past two years. Secondly, geopolitical tensions remain high. What explains oil’s weakness despite these factors that ordinarily might have supported prices?
Vehicle Efficiency
The average car in model year 2024 will likely be able to drive as much as 24% further on the same amount of fuel as a similar car from model year 2012. Since a car typically lasts about 12 years, this means that each year drivers around the world need to drive about 2% further than the year before just to keep demand stable.
In the U.S., drivers aren’t driving any further than they were back in 2019.
Demand From China
Last year, 35% of new cars sold in China were EVs, and this year that could grow to over 50%. China’s economy is also growing more slowly than in the past. Since 2005, oil prices have often peaked about one year after peaks in China’s pace of growth. China’s growth rate last crested in 2021, and oil prices peaked a year later in 2022.
Moreover, China’s economy decelerated sharply over the summer which might deprive oil of a critical source of demand growth going into late 2024 and into next year.
Finally, watch for OPEC+ decisions later this year, which could potentially boost output.
If you have futures in your trading portfolio, you can check out CME Group data plans available on TradingView to suit your trading needs: tradingview.com/cme/
By Erik Norland, Executive Director and Senior Economist, CME Group
*CME Group futures are not suitable for all investors and involve the risk of loss. Copyright © 2023 CME Group Inc.
**All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.
- With vehicle efficiency up and China's economy slowing, WTI crude oil prices experienced late summer lows, though they have since started to rebound
- Driving would need to increase by nearly 2% each year to keep fuel demand stable
Crude oil prices fell sharply in late August and early September. Does this mean that oil is a bargain?
The answer is complex. For starters, OPEC+ has taken 3.6 million barrels per day off of the market over the past two years. Secondly, geopolitical tensions remain high. What explains oil’s weakness despite these factors that ordinarily might have supported prices?
Vehicle Efficiency
The average car in model year 2024 will likely be able to drive as much as 24% further on the same amount of fuel as a similar car from model year 2012. Since a car typically lasts about 12 years, this means that each year drivers around the world need to drive about 2% further than the year before just to keep demand stable.
In the U.S., drivers aren’t driving any further than they were back in 2019.
Demand From China
Last year, 35% of new cars sold in China were EVs, and this year that could grow to over 50%. China’s economy is also growing more slowly than in the past. Since 2005, oil prices have often peaked about one year after peaks in China’s pace of growth. China’s growth rate last crested in 2021, and oil prices peaked a year later in 2022.
Moreover, China’s economy decelerated sharply over the summer which might deprive oil of a critical source of demand growth going into late 2024 and into next year.
Finally, watch for OPEC+ decisions later this year, which could potentially boost output.
If you have futures in your trading portfolio, you can check out CME Group data plans available on TradingView to suit your trading needs: tradingview.com/cme/
By Erik Norland, Executive Director and Senior Economist, CME Group
*CME Group futures are not suitable for all investors and involve the risk of loss. Copyright © 2023 CME Group Inc.
**All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.
Further details of CME Group's regulatory status and full disclaimer of liability in accordance with applicable law are available here: cmegroup.com/disclaimer.html
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