Bleak demand outlook drags WTI down to four-month lows

WTI is trading at $73.055 per barrel as US oil stocks rise more than anticipated. Earlier on the day, the American crude touched four month lows at $72.55.

Concerns about declining oil demand are fueled by weak US economic indicators, such as an increase in unemployment claims and a decline in industrial production. Even with the downward trend, oil prices are somewhat supported by Commerzbank’s optimistic forecasts and possible production cuts by Saudi Arabia and Russia.

WTI crashes to a four-month low of $72.22 in late New York session trading. WTI is trading at $72.55, down more than 5% from its peak of $76.58 due to investor concerns and an increase in US oil inventories.

WTI prices are under pressure due to weak US economic data and worries about demand abroad. According to data released by the US Energy Information Administration (EIA) on Wednesday, there was a significant build-up of over 3.6 million barrels of crude oil in the US last week, which caused the price of black gold to decline. This, along with soft data from the US suggesting a faster economic slowdown, led to a decline in WTI as investors became more concerned that demand would decline.

Thursday’s US industrial production fell as a result of the United Auto Workers (UAW) walkout. Concurrently, the number of jobless claims increased for the first time in three months, reaching a peak of about 230K, above estimates of 220K, indicating a slowdown in the labour market. The US Retail Sales report on Wednesday was not very strong, indicating that American households are starting to cut back on their spending before the holidays.

Although US data shows otherwise, OPEC and the International Energy Agency (IEA) forecasted a tightening of supply in the fourth quarter.

Concurrently, the anticipated slowdown in oil refineries in China has contributed to the list of obstacles pushing down WTI prices. Yet, China’s retail sales and industrial production both increased. But since Japan is one of the biggest energy importers in the world, the country’s economy grew very slowly in the third quarter, which hurts the country’s chances of seeing higher oil prices.

WTI prices would therefore be pressed. Nevertheless, oil prices would be supported by Saudi Arabia and Russia’s commitment to reduce production by 1.3 million barrels by the end of the year.

In Q1, 2024, some analysts predict that oil prices will surpass $80. Maintaining Saudi Arabia’s current output level would significantly lower the likelihood of an excess supply, allowing the price to marginally rise to $85 per barrel (from its current level; the previous estimate called for a decline to $85).