Oil prices faced a setback on Monday, reversing their recent Friday rally, as mounting concerns about waning demand in both the United States and China took a toll on market sentiment.
Brent crude futures for January dipped by 0.4%, down 35 cents to $81.08 a barrel, at 0051 GMT, while US West Texas Intermediate (WTI) crude futures for December saw a 0.5% decline, with a 35-cent drop to $76.82.
Just a few days ago, both benchmarks had recorded nearly a 2% increase after Iraq expressed support for oil production cuts by the OPEC+ alliance. However, they still ended the week down by approximately 4%, marking their third consecutive weekly losses, a trend not seen since May.
Hiroyuki Kikukawa, president of NS Trading, a subsidiary of Nissan Securities, noted that investors have shifted their focus towards sluggish demand in the United States and China. Concerns over potential supply disruptions arising from the Israel-Hamas conflict have somewhat subsided.
The US Energy Information Administration (EIA) recently reported that crude oil production in the United States for this year will rise slightly less than initially expected, while demand is expected to decline. This divergence in supply and demand has raised concerns among investors.
China, the world’s largest crude oil importer, witnessed weak economic data last week, exacerbating fears of declining demand. Furthermore, Chinese refiners have requested less supply from Saudi Arabia, the world’s leading oil exporter, for December. These factors collectively contributed to the negative sentiment in the oil market.
However, Kikukawa remains optimistic that oil prices could find support if WTI approaches the $75 per barrel mark. He added, “If the market falls further, we will likely see support buying on expectations that Saudi Arabia and Russia would decide to continue their voluntary supply cuts after December.”
Last week, top oil exporters Saudi Arabia and Russia confirmed that they would extend their additional voluntary oil output cuts until the end of the year. This decision came in response to ongoing concerns over demand and economic growth that continue to weigh on crude markets. OPEC+, which includes the Organization of the Petroleum Exporting Countries and its allies, including Russia, will convene on November 26 to discuss further actions.
While demand concerns are impacting the market, supply factors also play a crucial role. US energy firms have reduced the number of oil rigs in operation for the second consecutive week, bringing the count to its lowest level since January 2022. The rig count often serves as an indicator of future oil production trends.
Oil markets remain in flux, influenced by a delicate balance between supply and demand dynamics. Investors and industry experts are eagerly awaiting the upcoming OPEC+ meeting, where key decisions may determine the future direction of oil prices in a world still grappling with uncertainties surrounding the energy sector.
