Oil slips as traders fret about higher output

Oil prices slipped in early trade on Thursday, reversing most of the previous session’s gains, weighed down by worry of higher global production amid slow demand growth, with a firmer dollar compounding the declines.

Brent crude futures fell 35c, or 0.5%, to $71.93 a barrel by 4am GMT. US West Texas Intermediate crude (WTI) futures declined 42c, or 0.6%, to $68.01.

“Oil is tackling the [earlier] weaker demand forecast narrative by Opec, who deferred rolling back additional production for yet another month, fearing the adverse effect on prices,” said Phillip Nova senior market analyst Priyanka Sachdeva in an email.

On Tuesday, oil cartel Opec cut its global oil demand growth forecast to 1.82-million barrels a day (bbl/day) in 2024, down from 1.93-million barrels a day forecast last month, on weak demand in China, India and other regions, sending oil prices to their lowest in nearly two weeks.

Meanwhile, the US Energy Information Administration has slightly raised its expectation of US oil output to an average 13.23-million barrels a day this year, or 300,000bbl/day higher than last year’s record 12.93-million barrels a day, and up from 13.22-million barrels a day forecast earlier.

The agency also raised its global oil output forecast for 2024 to 102.6-million barrels a day, from its earlier forecast of 102.5-million barrels a day. For next year, it expects world output of 104.7-million barrels a day, up from 104.5-million barrels a day previously.

The EIA’s oil demand growth forecasts are weaker than Opec’s, at about 1-million barrels a day in 2024, though that is up from its prior forecast of about 900,000bbl/day.

Market participants are now waiting for the International Energy Agency’s oil market report, due later in the day, and the EIA’s US crude oil and product stockpile data for further trading cues.

Concerns about China’s demand remains a key contributor to softening prices, analysts say.

“Despite various stimulus measures implemented by Chinese authorities, there has been little to no improvement in economic activity or sentiment within mainland China,” said Sachdeva.

China continued to be the “sore joint” for oil demand and the primary reason oil markets were bracing for an oversupply in 2025, she said.

Also weighing on prices, the dollar rose to near a seven-month high against major currencies on Wednesday after data showed US inflation for October increased in line with expectations, suggesting the Federal Reserve will keep cutting rates.

“The stronger [dollar] is creating strong headwinds for commodities,” ANZ Research said in a note.

A firmer dollar makes commodities priced in the greenback expensive for buyers using other currencies. 

Reuters