Oil prices experienced a 1% decline on Tuesday, largely erasing the gains made on the previous day, as a blend of economic data from China, the world’s second-largest oil consumer, and concerns about winter demand overshadowed the news of Saudi Arabia and Russia’s extended output cuts.
By 0714 GMT, Brent crude futures had slipped by 92 cents, equivalent to a 1.08% decrease, bringing the price to $84.26 per barrel. This decline came after a $1 drop earlier in the day. Simultaneously, U.S. West Texas Intermediate crude was at $79.95 a barrel, marking a decrease of 87 cents, or 1.08%.
On Monday, both benchmark crude oil contracts had experienced a modest gain of approximately 30 cents following the reaffirmation by Saudi Arabia and Russia, the top oil exporters, of their commitment to extending voluntary oil supply cuts until the end of the year.
Despite the strong year-on-year and month-on-month growth in China’s crude oil imports in October, the country’s overall exports contracted at a rate faster than anticipated, reflecting global demand weakness.
Shanghai-based analyst Leon Li from CMC Markets noted, “China’s export data could be seen to be worse than expected, but domestic demand may be picking up.”
Concerns loom that China-based refiners will reduce crude runs between November and December, which could further dampen oil demand and exacerbate price declines.
Additionally, concerns of a milder-than-expected winter weighed on oil prices as it could potentially reduce energy and fuel consumption. CMC Markets’ Li remarked, “This year’s winter in the northern hemisphere is relatively warm, which has reduced fuel consumption to a certain extent.”
In terms of supply, market participants are eagerly awaiting to see how long Saudi Arabia and Russia are prepared to keep production in check. Given the subdued global demand, OPEC+ is expected to proceed with caution and is unlikely to hasten the reversal of oil production cuts when the joint ministerial monitoring committee convenes on November 26, noted OANDA’s senior market analyst Kelvin Wong.
ING analysts added, “What will be of more interest to the market is whether they will extend these cuts into early 2024 or start to bring this output back. We should get clarity on this sometime in early December.”
Saudi Arabia reaffirmed on Sunday its commitment to maintaining an additional voluntary cut of 1 million barrels per day (bpd), resulting in December production of about 9 million bpd, as confirmed by a source at the ministry of energy. Moscow also announced its intent to continue an additional voluntary supply cut of 300,000 bpd from its crude oil and petroleum product exports until the end of December.
