Concerns over weak demand spark a decline in oil prices

Reversing Monday’s increase and outweighing potential additional supply cuts
Concerns over weak demand spark a decline in oil prices
The oil market has dropped 16 percent since September

After recording an increase the previous day, oil prices experienced a decline on Tuesday. This comes as concerns about weakening demand in the face of a global economic slowdown have become more pronounced than OPEC+’s increased supply cuts.

“Since worries on the demand side have not been dispelled, investors took a wait-and-see attitude to confirm the actual OPEC+ decision,” noted Tsuyoshi Ueno. He is a senior economist at NLI Research Institute.

Brent, WTI crude futures decrease

As of 04:39 GMT, Brent crude futures slipped by 36 cents or 0.4 percent, settling at $81.96 per barrel. Simultaneously, US West Texas Intermediate (WTI) crude stood at $77.50 per barrel. This reflects a decline of 33 cents or 0.4 percent. 

On Monday, both contracts saw a 2 percent surge, following reports that OPEC+ will discuss increasing oil supply cuts during its meeting on November 26. OPEC+ comprises the Organization of the Petroleum Exporting Countries and its partners. 

According to Ueno, the market attention is expected to shift toward US and Chinese economic indicators to gauge the global demand trajectory. US crude oil inventory levels could also serve as a signal. 

The senior economist further highlighted the importance of considering a weakening US dollar, which could lend support to oil prices.

On Thursday last week, oil prices tumbled to their lowest levels since early July. Brent crude recorded a notable 4.6 percent decline on Thursday while WTI posted a 5.5 percent decrease.

Read: Diminishing demand from US, China prompts oil price decrease

Oil market performance

While in the short term, oil futures have been on a fluctuating rise and decline, the overall oil market has been facing a downward trend. Since late September, the oil market has already witnessed a 16 percent drop. This is fueled by record-high crude output in the US. Concerns over demand growth, particularly from China, the largest oil importer, have also played a role.

Furthermore, traders are on alert for indications of demand contraction linked to a potential US recession in 2024. According to a preliminary Reuters poll released on Monday, US crude and gasoline stockpiles likely increased last week. Simultaneously, distillate inventories declined.

Eight analysts have previously predicted that OPEC+ is likely to extend or intensify oil supply cuts into the next year. Goldman Sachs, among these analysts, emphasized that deeper cuts should not be dismissed, considering the decline in speculative positioning and time spreads, along with higher-than-anticipated inventories.

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