Oil prices remained close to a three-month low, prompted by forecasts of a decline in US gasoline consumption, adding to a growing list of indicators signaling a deteriorating demand outlook.
The global benchmark Brent traded below $82 a barrel after a 4.2% drop on Tuesday, while West Texas Intermediate was near $77. A US government report predicts that American gasoline demand will hit a 20-year low on a per-capita basis next year, attributing this decline to rising pump prices and inflation, which may lead to reduced discretionary driving.
Over the past three weeks, oil prices have experienced a sharp decline due to the dissipation of the Israel-Hamas war risk premium and a gloomier demand outlook. Concerns have emerged about the state of the Chinese economy, the world’s largest importer, as well as uncertainties regarding whether the Federal Reserve has completed its tightening measures. On the supply side, Russian oil shipments are approaching a four-month high, and industry data indicates that US crude stockpiles increased by nearly 12 million barrels last week.
The growing pessimism is also reflected in the futures market. The prompt time spread for West Texas Intermediate (WTI) now stands at just 10 cents a barrel in backwardation, a bullish market structure where near-term cargoes are more expensive than those for later dates. This is a decrease from the over $1 in backwardation observed on October 23.
The Israel-Hamas conflict has entered its second month, with Israeli troops advancing into the heart of Gaza City. Prime Minister Benjamin Netanyahu stated to ABC News that his country could maintain security control over Gaza for an “indefinite period.” However, this conflict has not yet impacted oil supply from the Middle East, which is a major source of about one-third of the world’s crude oil.
According to an industry-funded report from the American Petroleum Institute, crude inventories at the crucial hub in Cushing, Oklahoma, increased by 1.1 million barrels last week, if confirmed, this would be the largest increase since June. The Energy Information Administration is scheduled to release official data on November 15.
Despite these developments, OPEC+ remains optimistic about the demand outlook as it prepares for its next ministerial meeting. Saudi Arabia and Russia are expected to decide on whether to extend voluntary supply cuts into 2024 at the meeting scheduled for the final weekend of November.
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