Oil prices fell today, Thursday, breaking a three-day winning streak. The decline was driven by concerns over reduced demand triggered by a surprise increase in U.S. crude inventories.
Brent crude futures dropped 0.3 percent to $79.48 a barrel by 0303 GMT. Meanwhile, U.S. West Texas Intermediate crude also dropped 0.3 percent, falling to $74 a barrel.
Global trade disruptions
Global trade disruptions, particularly in the Red Sea route, had initially contributed to higher oil prices. However, concerns shifted back to the decreasing global demand. Major maritime carriers avoided the Red Sea route due to tensions in the Middle East, increasing transport costs, and insurance costs.
“Market focus returned to sluggish global demand as the impact on the Red Sea is seen to be limited on oil as long as it does not spill over into the Strait of Hormuz,” said Tsuyoshi Ueno, senior economist at NLI Research Institute.
Moreover, 12 percent of world shipping traffic passes up the Red Sea and through the Suez Canal. However, the impact on oil supply and prices has been limited so far. That is due to the bulk of Middle East crude being exported via the Strait of Hormuz.
Record U.S. crude output
The U.S. Energy Information Administration (EIA) reported an unexpected surge in U.S. crude inventories. It revealed a 2.9 million barrel increase to 443.7 million barrels. That is compared with the 2.3 million barrel drop anticipated by analysts in a Reuters poll.
The EIA’s report also highlighted another factor influencing the market, a record-breaking U.S. crude output. The production surged to 13.3 million barrels per day, surpassing the previous all-time high of 13.2 million barrels per day. This added pressure on oil prices, compounding concerns about the demand-supply balance.
Read: Petrol prices in the UAE for December 2023
OPEC+ stance
The Organization of the Petroleum Exporting Countries (OPEC) and its allies (OPEC+) is not planning additional production cuts this year. Therefore, analysts predict that oil prices will likely remain within a certain range. Naohiro Niimura, a partner at Market Risk Advisory, forecasted that West Texas Intermediate (WTI) would trade between $70 and $75 this month. The focus now turns to key economic statistics and the U.S. dollar’s reaction to the cuts.
As oil markets navigate a complex landscape of geopolitical tensions, inventory fluctuations, and global trade considerations, investors remain watchful for any developments that could further sway prices in the coming weeks.
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