After a series of major mergers and acquisitions in the oil exploration and production fields, the United States may have created a local "micro OPEC" organization called the cartel. Due to the decline in demand and the increasing concerns about the global oversupply of crude oil, these refining giants in the United States are coordinating policies to reduce production capacity this quarter, which is raising the red flag of oversupply again.

According to the media, four of the most prestigious refining companies in the United States are planning to reduce their production capacity. Marathon Petroleum, the largest refinery in the United States, plans to reduce the average refining capacity of 13 of its factories to 90% in the third quarter, the lowest level since the same period in 2020, a 4 percentage point decrease from the same period in 2023. PBF Energy announced that it plans to reduce its refined oil production to the lowest level in three years. The refineries of Phillips 66 will operate at the lowest level in two years, and Valero Energy is expected to soon reduce its petroleum processing capacity.

About 40% of the refined gasoline and diesel production capacity in the United States comes from the above four major refining companies. Their refineries refine oil into diesel, aviation fuel, gasoline, and other basic crude oil products that are crucial to the economy. The market is worried that slowing economies of countries like the United States will reduce oil demand, leading to lower profits for the refining industry.

According to the media, the fuel manufacturing industry in the United States is a key factor in the supply and demand balance of the global oil market. With stagnant consumption and declining profit margins, the industry is struggling, and the threat of an economic slowdown makes it more likely that there will be an oversupply of crude oil. Even if OPEC+ continues to cut production this year, and geopolitical tensions are more tense, the threat of an economic slowdown has restricted this year's increase in oil prices to about 7%.

Bachar EL-Halabi, a senior journalist at Argus Media, posted on social media on Monday that OPEC had downgraded its global oil demand growth expectations for 2024 and 2025 for the first time since July 2020. OPEC now expects demand growth of 2.11 million barrels per day this year or 2024, down from 2.25 million barrels per day previously, and it has lowered its oil demand growth expectations for next year by 0.06 million barrels per day to 1.78 million barrels per day.

After the adjustments, the gap between OPEC's oil demand growth expectations and those of the International Energy Agency (IEA) and the Energy Information Administration (EIA) under the US Energy Department has narrowed. Nevertheless, EL-Halabi believes that OPEC's data is still relatively optimistic compared to IEA and EIA forecasts. The IEA expects oil demand to grow by 0.97 million barrels per day this year, and the EIA expects it to grow by 1.1 million barrels per day.

Vikas Dwivedi, a global oil and gas strategist at Macquarie, recently commented that the decline in refining margins has laid the foundation for another large-scale refinery maintenance in the United States this fall, which will put pressure on the market supply and demand balance and may lead to an increase in US crude oil inventories for the remainder of this year. The possibility of oversupply has reduced the geopolitical risk premium in the increasingly tense Middle East, as the market is no longer willing to pay a huge premium because the (geopolitical) crisis has not caused any (supply) losses to oil so far.

Dwivedi expects Brent crude oil to average around $75 per barrel in the fourth quarter and fall to $64 per barrel in the second quarter of next year.

International crude oil futures continued to rise for five consecutive trading days on Monday. During the midday trading session in the US stock market, US WTI crude oil rose more than 4%, breaking through the $80 mark for the first time since late July, while Brent oil rose to a new intraday high since the end of July, with an increase of more than 3% in one day.

Commentators believe that besides OPEC’s downgrade of its oil demand growth expectations for the next two years, the sharp rise in oil prices on Monday is also due to market expectations that the continuing Middle East conflict may cause global crude oil supply to tighten.

According to Chinanews.com, the US Department of Defense announced last Sunday that Defense Secretary Austin ordered the deployment of a cruise missile nuclear submarine to the Middle East. Other media reported that after observing that Iran and the military organization Hezbollah were preparing for possible attacks, Israel put its troops on high alert.

Claudio Galimberti, global market analysis director at Rystad Energy, said that this week and next week are critical for determining whether the geopolitical situation will further escalate and whether geopolitical risks will greatly affect oil prices. The escalation of tensions may pose a significant threat to global oil supplies. Traders are most concerned about the risk of attacks on oil infrastructure, as that kind of damage could significantly reduce crude oil supplies and push up oil prices.