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Oil drops to 6-month low on weak economic outlook, high U.S. supply

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Oil drops to 6-month low on weak economic outlook, high U.S. supply By Reuters

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Published Dec 07, 2023 02:12
Updated Dec 07, 2023 20:37

© Reuters. FILE PHOTO: A pump is seen at a gas station in Manhattan, New York City, U.S., August 11, 2022. REUTERS/Andrew Kelly/File Photo

By Stephanie Kelly

NEW YORK (Reuters) -Oil prices fell on Thursday to six-month lows, as investors worried about sluggish energy demand in the United States and China while output from the U.S. remains near record highs.

Brent crude futures dropped 25 cents to $74.05 a barrel. U.S. West Texas Intermediate crude futures fell 4 cents to $69.34. Both benchmarks posted their lowest prices since late June.

Front-month prices for Brent began trading this week at a discount to prices in a half year for the first time since June, a signal that traders believe the market may have become oversupplied.

“With the largest global importer of oil (China) shuttering its thirst for crude, pressure remains on prices as the largest producer, the United States, continues with headline output,” said PVM Oil analyst John Evans.

U.S. output remained near record highs of over 13 million barrels per day, U.S. Energy Information Administration data showed on Wednesday.

U.S. gasoline stocks rose by 5.4 million barrels last week to 223.6 million barrels, the EIA said, more than quintuple the 1 million barrel build that had been expected.

Concerns about China’s economy also put a lid on oil’s price gains.

Chinese customs data showed that crude oil imports in November fell 9% from a year earlier as high inventory levels, weak economic indicators and slowing orders from independent refiners weakened demand.

While China’s total imports dropped on a monthly basis, exports grew in November for the first time in six months, suggesting an uptick in global trade flows may be helping the manufacturing sector.

Ratings agency Moody’s put Hong Kong, Macau and many of China’s state-owned companies and banks on downgrade warnings on Wednesday, a day after it put a downgrade warning on China’s sovereign credit rating.

Oil prices have fallen by about 10% since OPEC+, the Organization of the Petroleum Exporting Countries (OPEC) and allies, announced a combined 2.2 million barrels per day (bpd) in voluntary output cuts for the first quarter of next year.

“The market seems to be suggesting that they don’t believe OPEC+ has the ability to follow through on their cuts,” said Phil Flynn, an analyst at Price Futures Group in Chicago.

Saudi Arabia and Russia, the two biggest oil exporters, on Thursday called for all OPEC+ members to join an agreement on output cuts for the good of the global economy.

Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman met on Wednesday to discuss further oil price cooperation, while OPEC+ member Algeria said it would not rule out extending or deepening oil supply cuts.

On Tuesday Russian Deputy Prime Minister Alexander Novak on Tuesday said the producer group stood ready to strengthen oil supply cuts in the first quarter of 2024.

Russia has pledged to disclose more data on the volume of its fuel refining and exports after OPEC+ asked Moscow for more transparency on classified fuel shipments from the many export points across the country, sources at OPEC+ and ship-tracking companies told Reuters.

Oil drops to 6-month low on weak economic outlook, high U.S. supply

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