Oil prices drop to lowest since August as demand concerns outweigh supply cuts

Weaker economic expectations are expected to dampen crude demand

Pudong financial district in Shanghai. Opec+ is expected to closely monitor China’s incoming data. AP

Oil prices fell to their lowest level since August on Tuesday as concerns about demand offset supply cuts by Saudi Arabia and Russia.

Brent, the benchmark for two thirds of the world’s oil, was trading 1.77 per cent lower at $83.67 a barrel at 3.28pm UAE time while West Texas Intermediate, the gauge that tracks US crude, was down 1.66 per cent at $79.48 a barrel.

“Weaker economic expectations have weighed on crude prices recently, which has contributed to prices pulling off their highs and, arguably, once again justified the positions of Opec+ nations in cutting supply,” said Craig Erlam, a senior market analyst at Oanda.

“It is not a question of whether the two countries keep to end-of-year targets, but whether they extend them.”

Saudi Arabia and Russia have announced that they would continue voluntary supply cuts of a combined 1.3 million barrels per day until the end of the year amid oil market volatility caused by the Israel-Gaza war.

The supply cuts will probably be extended into the first quarter of 2024, given seasonally weaker demand, economic growth concerns and Opec+’s goal to support the oil market’s stability, said UBS strategist Giovanni Staunovo.

“We expect the group to continue to closely monitor China’s incoming data and the impact aggressive monetary policy tightening may have on economic activity in Europe and the US,” he said.

Opec+’s next ministerial meeting is scheduled to take place on November 26 in Vienna.

The Swiss lender has forecast Brent moving back to the $90 to $100 a barrel range, supported by lower oil stocks.

Brent is lower than where it was before October 7, when the Israel-Gaza war broke out.

Supply concerns remain despite China’s crude imports rising by about 14 per cent in October from a year earlier amid higher domestic demand, according to the General Administration of Customs.

However, overall exports from the world’s second-largest economy shrank by 6.4 per cent annually last month, the data showed.

In the US, a less tight labour market and signs of weaker-than-expected services activity have boosted confidence that the US Federal Reserve has completed its interest rate-increase cycle, said David Kohl, chief economist at Julius Baer.

“The general normalisation of the labour market following the exceptional tightening is, therefore, continuing and is helping to reduce the upward pressure on wages,” he said.