In recent days, oil prices have experienced a significant decline, falling about 2% on Thursday and continuing the nearly 6% losses from the previous session. This drop in prices can be attributed to concerns over the demand outlook, which has overshadowed the decision made by Opec+ to maintain oil output cuts in order to keep the supply tight. The global benchmark Brent crude futures have seen a decline of about $10 a barrel in less than 10 days, after coming close to reaching $100 in late September. This rapid drop in prices over the past two days marks the steepest decline since May for both crude benchmarks.
At 1.41pm ET (1741 GMT), Brent futures were at $84.43, down $1.38 or 1.6%, while US West Texas Intermediate crude futures stood at $82.83, down $1.38 cents or 1.6%. Despite a meeting of the Opec+ ministerial panel and the announcement that Saudi Arabia will maintain a voluntary cut of 1 million barrels per day (bpd) until the end of 2023, and Russia will keep a 3,00,000 bpd voluntary export curb until the end of December, the market did not respond favorably. Investors are worried that the peak demand for fuel consumption may have already passed, which has led to hedge funds liquidating heavily due to fears that higher interest rates and inflation will reduce fuel demand. Overall, the market is currently searching for an equilibrium.
Close-to-close volatility on Brent crude was reported to be at its highest level since May, while volatility on US West Texas Intermediate crude was at its highest level since June. According to analysts at National Australia Bank, the market will face a deficit throughout the fourth quarter, and the softer prices may make it less likely for OPEC to ease supply constraints. In addition, recent government data has shown a sharp decline in US gasoline demand, which is at its lowest level since the beginning of the year. Experts predict that gasoline demand will not rise significantly until the holiday shopping season begins, leading to further concerns for the market.
Other data has shown that the US services sector has slowed, and the euro zone economy likely shrank in the last quarter. Furthermore, the US dollar has eased slightly but remains near 11-month highs, making crude more expensive for foreign buyers. On a positive note, the Turkish energy minister has announced that a crude oil pipeline from Iraq through Turkey, which has been suspended for the past six months, is now ready for operations.
Perspective: The recent plunge in oil prices due to concerns over demand highlights the ongoing uncertainty and volatility in the energy markets. While Opec+ has made efforts to maintain supply tightness by continuing oil output cuts, the potential decline in fuel consumption and the impact of rising interest rates and inflation are factors that market participants are closely monitoring. This situation emphasizes the need for a balanced approach in managing global energy resources and exploring sustainable alternatives to promote stability and reduce dependency on fossil fuels.
