In a dramatic turn of events, global oil prices plummeted nearly 3% on Wednesday, hitting their lowest levels in over three months. The sharp decline was driven by mounting apprehensions regarding the demand for oil in the United States and China.
Brent crude futures dropped by $2.14, or 2.6%, settling at $79.47 per barrel, while U.S. crude fell by $2.12, or 2.7%, closing at $75.25. Both benchmarks reached their lowest points since mid-July, sending shockwaves through the energy markets.
Analysts from ING, Warren Patterson, and Ewa Manthey, noted that the market appears less preoccupied with the potential for supply disruptions in the Middle East. Instead, it has shifted its attention towards concerns about a potential imbalance in supply and demand, particularly amid the ongoing uncertainty surrounding global economic conditions.
Surging US crude oil stocks
Adding to the bearish sentiment, reports emerged that U.S. crude oil stocks surged by almost 12 million barrels last week, as stated by sources in reference to figures from the American Petroleum Institute.
This marked the most significant build in oil stocks since February, contrasting with government data. However, the U.S. Energy Information Administration (EIA) decided to delay the release of its weekly oil inventory data, usually scheduled for Wednesdays, until November 15, due to an ongoing systems upgrade.
Revised forecasts from EIA
In a further blow to the oil market, the U.S. Energy Information Administration (EIA) revised its earlier forecasts, indicating that U.S. crude production would increase by slightly less than previously expected. Additionally, petroleum consumption is now anticipated to fall by 300,000 barrels per day (bpd), reversing the EIA's previous forecast of a 100,000-bpd increase.
China's economic worries
China, the world's largest crude oil importer, also contributed to the apprehension. Data from China showed a faster-than-expected contraction in its total exports of goods and services, intensifying concerns about the global energy demand outlook.
The euro zone experienced a decline in retail sales, further underscoring weak consumer demand and raising the specter of a looming recession, as indicated by economic data.
Despite these disconcerting indicators, some factors are tempering the oil market's descent. Analysts have expressed confidence that the ongoing conflict in Israel and the Gaza Strip will not significantly impact global oil supply. This sentiment, coupled with reports of robust growth in China's October crude oil imports and the country's central bank governor's assurance that China is on track to meet its GDP growth target, provide some degree of reassurance.
OPEC's production cuts
Goldman Sachs analysts estimate that seaborne net oil exports from OPEC member countries will remain just 600,000 bpd below April levels, despite the organization's cumulative production cuts amounting to 2 million bpd since April 2023.
In a potential move to stabilize its domestic fuel market, Russia is considering the possibility of lifting the export ban on some gasoline grades. This measure was initially introduced on September 21 to address high domestic prices and fuel shortages. The government partially eased restrictions on October 6, allowing the export of diesel by pipeline but maintaining controls on gasoline exports.
Reflecting the bearish sentiment in the oil market, Barclays has adjusted its 2024 Brent crude price forecast, reducing it by $4 to $93 per barrel. This development underscores the prevailing uncertainty and volatility in the global oil market, where demand and supply dynamics remain highly sensitive to a range of factors.
