Oil extends losses after falling to six-month low on demand concerns

US inflation eased in November but was still higher than market expectations

Demand and oversupply concerns force oil prices to a six-month low. Reuters
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Oil extended losses on Wednesday after falling to a six-month low the previous day amid demand and oversupply concerns.

Brent, the global benchmark for two thirds of the world's oil, was trading 0.7 per cent lower at $72.71 a barrel at 12.06pm UAE time on Wednesday. West Texas Intermediate, the gauge that tracks US crude, was down 0.7 per cent at $68.10 a barrel.

On Tuesday, Brent settled 3.67 per cent lower at $73.24 a barrel, the lowest since July. WTI closed down 3.8 per cent at $68.61 a barrel.

US inflation eased in November but was higher than market expectations, cooling any hopes that the US Federal Reserve would cut interest rates early next year.

The Consumer Price Index (CPI) rose 0.1 per cent last month, the Labour Department reported on Tuesday. On an annual basis, inflation rose 3.1 per cent, down from 3.2 per cent in October.

Petrol costs, which declined by 6 per cent, contributed to last month's slowdown, the Labour Department said.

The Fed is expected to leave interest rates unchanged on Wednesday after its last policy meeting of the year.

“With the latest inflation report behind us with minimal fanfare, the Fed officials will lightheartedly keep interest rates steady this month,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

“Economic forecasts … will play a crucial role in providing insight into the perspectives of Fed officials regarding expectations for rate cuts,” she said.

Since November 30, when the Opec+ alliance of oil-producing countries announced voluntary production cuts of 2.2 million barrels per day for the first quarter of 2024, oil prices have fallen by nearly 13 per cent.

The slide in oil prices is partly due to mounting fears that producers would not comply with the supply cuts, UBS strategist Giovanni Staunovo said.

Traders are also concerned that the alliance could unwind its production cuts next year and “flood the market” to fight for market share, Mr Staunovo said.

“With market liquidity drying up as we approach the end of the year, prices are likely to stay volatile and further lows cannot be excluded,” he said.

“We still see prices trending higher next year, with market balances tightening in again with Opec+ implementing their production cuts,” the UBS strategist added.

Meanwhile, the US Energy Information Administration in its latest short-term energy outlook report raised its forecast for supply this year by 300,000 bpd to 12.93 million bpd from its previous report.

Updated: December 13, 2023, 8:30 AM