Fears of increased production and weak demand cause oil prices to drop

Oil prices dropped in early Thursday trading, erasing much of the previous session's gains. The decline was driven by concerns over rising global production amid sluggish demand growth, with the strengthening dollar further intensifying the downward pressure.

By 0400 GMT, Brent crude futures had fallen by 35 cents, or 0.5%, to $71.93 a barrel, while U.S. West Texas Intermediate (WTI) crude futures dropped 42 cents, or 0.6%, to $68.01.

"Oil is responding to OPEC's earlier weak demand forecast, as they chose to delay rolling back additional production for another month, fearing a negative impact on prices," said Priyanka Sachdeva, senior market analyst at Phillip Nova, in an email.

Earlier this week, OPEC revised its global oil demand growth forecast down to 1.82 million barrels per day (bpd) for 2024, from 1.93 million bpd in the previous month, citing weak demand in China, India, and other regions. This adjustment sent oil prices to their lowest point in almost two weeks.

The U.S. Energy Information Administration (EIA) has slightly raised its forecast for U.S. oil production to an average of 13.23 million bpd for this year, up from last year's record of 12.93 million bpd and higher than the previous forecast of 13.22 million bpd.

The EIA also increased its global oil output forecast for 2024 to 102.6 million bpd, up from the prior estimate of 102.5 million bpd. For 2025, the agency now expects world output to reach 104.7 million bpd, up from the earlier forecast of 104.5 million bpd.

In contrast to OPEC's demand growth forecast of about 1.82 million bpd for 2024, the EIA's outlook is weaker, projecting growth of about 1 million bpd, though this is slightly up from its previous estimate of 900,000 bpd.

Market participants are awaiting the International Energy Agency's (IEA) oil market report later today, along with the EIA's data on U.S. crude oil and product stockpiles, for further guidance.

Concerns over China's demand continue to weigh on prices, analysts note.

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

She added that China's demand remains a significant factor, with the country being the key driver of concerns about a potential oversupply in 2025.

Additionally, a stronger U.S. dollar, which reached a near seven-month high against major currencies on Wednesday following data showing October's U.S. inflation aligned with expectations, has added further pressure on oil prices. Analysts from ANZ Research noted that "the stronger USD is creating significant headwinds for commodities."

A stronger dollar makes commodities priced in U.S. dollars more expensive for buyers using other currencies.

 

 

 

 

 

 

 

 

Paraphrasing text from "Reuters" all rights reserved by the original author.