Oil prices hit lowest since July on demand concerns despite Opec+ cuts

The strong US dollar is also dragging down crude prices

Oil prices rose following the start of the Israel-Gaza war but fell in the subsequent weeks on easing concern. Reuters

Oil prices steadied on Wednesday after touching a near five-month low on Tuesday over concerns of slow demand growth in China and a stronger US dollar despite the Opec+ cuts announced last week.

Brent, the global benchmark for two thirds of the world's oil, was trading 0.25 per cent higher at $77.39 a barrel at 11.41am UAE time on Wednesday. West Texas Intermediate, the gauge that tracks US crude, was up 0.7 per cent at $72.37 a barrel.

On Tuesday, Brent ended down 1.1 per cent at $77.20 a barrel, while WTI settled 1 per cent lower at $72.32, with both benchmarks hitting their lowest level since July 6. Brent has fallen by more than 7 per cent over the previous four sessions.

“The Opec+ deal did little to support prices and given the three days of declines that followed it, traders are clearly very unimpressed,” said Craig Erlam, senior market analyst at Oanda.

Last week, Opec+ members extended their voluntary oil output reductions until the end of the first quarter of next year amid concerns over future fuel demand.

Saudi Arabia, the world's largest oil exporter, will keep its voluntary output cut of one million barrels per day until the end of March.

“The kingdom’s production will be approximately nine million bpd … and to support market stability, these additional reduction quantities will be restored gradually, according to market conditions,” the Saudi Press Agency reported, citing an energy ministry source.

Russia said it would deepen its voluntary oil production cut to 500,000 bpd and extend it until the end of the first quarter of next year.

Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman on Tuesday said the Opec+ oil production cuts can “absolutely” continue past the first quarter if needed, and that the curbs would be delivered in full.

“Markets remain sceptical over the commitment of Opec+ members to the voluntary cuts extension announced last week, despite assurances from the Saudi Arabian Oil Minister. Supply still appears strong, with the weekly API report showing that US crude stockpiles rose by 594,000 barrels,” said Daniel Richards, Mena economist at Emirates NBD.

Oil prices are also weighed down by a strong US dollar.

A stronger dollar makes crude oil more expensive for buyers paying in non-dollar currencies, which, in turn, can reduce oil demand.

The US dollar rose to a two-week high after latest employment data showed job openings fell in October to the lowest level since early 2021.

On Tuesday, Moody's cut China's outlook to negative, flagging weakening growth prospects, adding to mounting global concerns over a slowdown in the world’s second biggest economy.

“Crude oil remains sold in a lower-highs-lower-lows pattern that paves the way for a further fall to the $70 per barrel target, and China is not happy because Moody’s cut its outlook for the Chinese sovereign bonds to negative warning that the country’s usage of fiscal stimulus to support local governments and its spiraling property downturn pose risks to its economy, “said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

Oil prices, which briefly touched $98 in September, have since fallen by nearly 21 per cent, despite predictions of a tight crude market in the fourth quarter by the International Energy Agency and Opec.

Crude prices rose following the start of the Israel-Gaza war but fell in the subsequent weeks on easing concerns pertaining to the disruption of Middle East supplies.