Oil prices are falling: why have prices fallen so much since early August?

Since the beginning of August, oil prices have steadily and sharply declined. Brent crude dropped from around $74 a barrel on August 1st to just below $62 in the second week of October: a decline of around 16% in two months . US WTI crude followed a similar trend, from $70 to around $57.70 over the same period. Only at the beginning of the summer did the market seem headed for a steady recovery, supported by OPEC+ cuts and forecasts of robust demand. Within a few weeks, however, the situation changed completely.

The oil correction is not the result of a single shock, but of a combination of rising supply , slowing demand , and a more cautious market sentiment that has prompted many traders to reduce their speculative positions.

1. OPEC+ reopens the taps

For months, the cartel of producing countries had supported prices with voluntary cuts intended to rebalance the market. But in late July, OPEC+ announced it would gradually remove cuts amounting to about 2.2 million barrels per day by September.

This immediately changed the market perception: the prospect of a return of such high volumes generated fears of oversupply , especially at a time when demand was showing signs of weakening.

According to the International Energy Agency (IEA) , global production has exceeded 102 million barrels per day , while demand has remained lower over the same period. When supply exceeds demand, prices inevitably tend to fall: it's the simplest yet most implacable law of the market.

2. Rising inventories and signs of weak demand

US crude oil inventories rose for several consecutive weeks between August and September, a sign that real consumption is not keeping pace with production . Meanwhile, global macroeconomic data are showing a slowdown: in Europe, German industrial production fell by 3.9% in August, China continues to see a decline in domestic demand, and in the United States, high interest rates have reduced private spending.

The combination of these factors has fueled fears of weaker energy demand in the coming quarters. And when the market senses that consumption is slowing, it tends to anticipate future moves, driving prices down even before actual demand actually declines .

3. The strong dollar

Another key factor is the strength of the U.S. dollar . Between September and October, the dollar index (DXY) rose more than 2% , driven by expectations of continued high interest rates from the Federal Reserve. Since oil is priced in dollars, a stronger greenback makes crude more expensive for buyers in other currencies , reducing international demand and pushing prices further down.

4. The truce between Israel and Hamas: almost zero effect

The fragile truce between Israel and Hamas, heralded as a first step toward lasting peace, has had minimal impact on the oil market. While it's true that a ceasefire can reduce the so-called "geopolitical risk premium," in this case the effect was marginal : the decline in oil prices had already begun weeks before the agreement and was explained by much more concrete economic factors.

Rystad Energy estimates indicate that the easing of Middle East risk had a less than 2% impact on the price of Brent crude—a change far insufficient to account for the correction of more than $10 a barrel between August and October. In other words, the "peace" didn't drive oil prices lower: it merely removed a slight tension premium , which, in a surplus scenario, faded into the background.

In summary

The decline in oil prices since August has not been caused by emotional or political factors, but by an economic rebalancing : excessive supply, weak demand, and a strong dollar. The Israeli-Palestinian truce is merely a minor detail in a scenario dominated by much more robust market dynamics. Black gold, in short, is raining from the sky, as in the symbolic illustrations , but for reasons that have more to do with the real economy than geopolitics.