Oil futures slumped further on Thursday (October 4, 2023) as uncertainty over global demand countered the upside potential offered by an overnight Saudi-Russian announcement of extending their ongoing 1.3 million barrels per day (bpd) production cut until the end of the year.
At 12:39 BST, global proxy benchmark Brent was down $1.40 or 1.63% to $84.41 per barrel, while the West Texas Intermediate (WTI) was trading at $ 82.68 per barrel, $1.54 or 1.83% lower. Thursday’s declines follow a sharp slump overnight of over $5 per barrel in the case of Brent – the benchmark’s biggest intraday drop for over a year.
Uncertainty over global demand – likely clouded by China’s economic performance, coupled with a high interest rate climate and rising strength of the U.S. dollar – appear to have created a perfect storm, despite oil producers group OPEC+ being in belligerent mood and rebuffing calls to increase oil production.
Defending the OPEC+ stance at energy conference ADIPEC in Abu Dhabi earlier this week, Secretary General Haitham Al-Ghais said Saudi Arabia and Russia’s decision to keep oil production cuts were decisions taken by two sovereign nations.
“We [OPEC+ producers] are running quite low on spare capacity. We have said this repeatedly and this requires a concerted effort by all of the stakeholders to see the importance of actually investing in this industry. We still see oil demand as quite resilient this year, as it was last year.”
But signs of demand destruction in the wake of relatively higher oil prices are also surfacing. For instance, the U.S. Energy Information Administration (EIA) revealed a sharp decline in domestic gasoline demand. Finished motor gasoline supplied – considered a proxy indicator for U.S. demand – fell the previous week to just over 8 million bpd. That is the lowest level since the start of 2023, according to back-dated EIA data.
Additionally, India’s Energy Minister Hardeep Singh Puri told ADIPEC that if the oil price hits or surpasses $100 levels at some point near-term, “recessionary” headwinds will likely hit a number of developing economies, especially those plagued by high inflation. The next OPEC+ meeting is scheduled for November 26, 2023.
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