Oil prices dropped on Tuesday as investors weighed the uncertain outlook for global oil demand and the Fed’s stance on inflation. The decline came despite the announcement by Saudi Arabia and Russia that they would keep their oil production cuts until the end of the year.
The two leading members of the OPEC+ alliance, which includes other OPEC countries and some non-OPEC producers, said they would maintain their voluntary output reductions of more than 1 million barrels per day (bpd) through December. The move was aimed at supporting the oil market amid the ongoing pandemic, which has reduced fuel consumption and travel activity.
However, oil prices failed to rally on the news, as traders focused on the weak economic growth in Europe and China, the largest oil importers. The European Union’s manufacturing sector contracted in October, while China’s refining margins fell to their lowest level in more than a year, signaling lower demand for crude oil.
Oil prices were also pressured by the comments of a Fed official, who said it was too early to declare victory over inflation and suggested that the US central bank may need to raise interest rates further. Higher interest rates tend to strengthen the US dollar, making oil more expensive for buyers using other currencies.
Brent crude, the global benchmark, fell 0.8% to $84.92 a barrel, while West Texas Intermediate (WTI), the US marker, slipped 0.9% to $79.86 a barrel. Both benchmarks have retreated from their multi-year highs reached earlier this month, when a rocket attack by Hamas on Israel raised fears of a wider conflict in the Middle East, the world’s largest oil-producing region.
Oil prices have also been influenced by the supply disruptions in the US, where Hurricane Ida damaged offshore platforms and pipelines in the Gulf of Mexico in late August. The US government said on Monday that about 16% of the US Gulf’s oil production, or 288,000 bpd, remained offline.
The US Energy Information Administration (EIA) will release its monthly energy outlook and its weekly oil inventory report on Tuesday, which may provide more clues on the supply and demand situation in the world’s biggest oil consumer. The American Petroleum Institute (API), an industry group, will also publish its own estimate of US crude stockpiles.
Oil analysts and experts have different views on the direction of oil prices in the coming months, as the market faces a complex mix of factors, such as the OPEC+ policy, the pandemic’s impact, the geopolitical tensions, and the environmental regulations. Some predict that oil prices could reach $100 a barrel or higher, while others expect a correction or a plateau.
However, most agree that oil demand will continue to recover as the global economy rebounds from the pandemic and as more people get vaccinated. The International Energy Agency (IEA) said last week that it expected oil demand to grow by 5.9 million bpd in 2023, reaching pre-pandemic levels by the end of the year.
Source: Energy Connect
