Oil prices continue to decline on Wednesday, reaching a five-month low, despite the Energy Information Administration’s (EIA) revelation that crude inventories in the United States plummeted by 4.6 million barrels last week. The unexpected decline in prices has raised concerns about oversupply and weakened demand.
According to the EIA data, gasoline stockpiles surged by more than 5 million barrels last week, exceeding the estimated build of 1.3 million barrels. While an increase in fuel inventory is typical for this time of the year, the unusually high levels suggest a significant dip in demand, indicating potential economic challenges.
In midday trading on Wednesday, West Texas Intermediate (CL=F) experienced a 4% drop, slipping below the $70 per barrel mark. Simultaneously, Brent (BZ=F) crude, the international benchmark price, saw a 3.6% decrease, falling below $75 per barrel.
The day began with oil prices already on a downward trajectory, fueled by concerns of oversupply and weakened demand. This sentiment was exacerbated by Moody’s warning on Tuesday, downgrading China’s credit rating amidst mounting worries about the country’s economic growth.
Dennis Kissler, Senior Vice President at BOK Financial’s trading division, commented on the situation, stating, “Economic numbers from China are showing a further slowdown as Asian refinery run rates continue to drop with Saudi cutting cash crude prices for next month to China.” He also highlighted the seasonal tendency for oil prices to decline in late December.
In the backdrop of the economic landscape, ADP employment data released on Wednesday indicated an increase of 103,000 jobs in the US last month, falling short of expectations set at 130,000. Additionally, revisions to the prior month’s figures lowered the reported job additions from 113,000 to 106,000. This weaker performance in the US job market is indicative of lower demand amid an economic slowdown.
Despite concerted efforts by the OPEC+ alliance to curb output, oil prices have been on a persistent decline over the past few months. Even last week’s additional output reductions of 1 million barrels per day failed to bolster prices. The decision by OPEC+ to deepen cuts was accompanied by Saudi Arabia’s unilateral extension of a 1 million barrels per day reduction.
However, the official press release following the OPEC+ meeting omitted any mention of the supplementary cuts, leading traders to speculate that these reductions were voluntary, with each country announcing quotas individually. Since the alliance’s decision, both WTI and Brent have experienced a decline of approximately $5 each, constituting a significant 6% drop.
In conclusion, the persistent challenges in the global economic landscape and ongoing concerns about oversupply and weakening demand paint a somber picture as oil prices continue to decline, leaving investors and markets on edge about the trajectory ahead. As the year comes to a close, market participants remain watchful for any signs of stabilization or further fluctuations in this critical sector.
Source: Yahoo Finance
