On Wednesday, U.S. crude oil prices dropped over 1%, falling below $70 per barrel, sparking speculation that OPEC+ may delay its planned production increases set for the following month. The price decline followed a 4% drop on Tuesday, bringing U.S. crude to $68.83, the lowest level since December.
Both U.S. crude and Brent, the global benchmark, have erased all their 2024 gains amid concerns over uncertain demand and the lack of significant supply disruptions, leading market watchers to focus on OPEC+’s next move.
Wednesday’s energy price data showed a continued decline in oil and other energy commodities. West Texas Intermediate crude closed at $69.20 per barrel, down 1.62% for the day, while Brent closed at $72.70 per barrel, down 1.42%.
Gasoline and natural gas prices also fell, contributing to year-to-date declines across the board, with U.S. crude down 3.4%, Brent down 5.6%, and gasoline down 6.7%. These price drops reflect broader concerns about a weakening global economy.
Weak manufacturing activity in the U.S. and China has reignited fears of an economic slowdown, which has weighed heavily on oil prices. The equity markets also suffered, with the S&P 500 experiencing its worst day since early August.
RBC’s Helima Croft pointed out that weak Chinese demand has been a significant factor this year, evidenced by lower imports and refinery utilization rates in China, adding to the headwinds for oil prices.
OPEC+ had plans to increase oil production by 180,000 barrels per day in October, but market conditions may lead the group to reconsider this move. Although some members of OPEC+ reportedly still plan to proceed with the increase, several sources suggest the group may delay the boost due to weakening market sentiment.
Giovanni Staunovo, a strategist at UBS, noted that the market’s reaction to supply news highlights the current weak sentiment and hinted that the planned production increases might be paused.
Despite the negative market sentiment, UBS remains optimistic that Brent prices will recover to $80 per barrel in the coming months. Staunovo and other analysts pointed out that the oil market is still fundamentally undersupplied, with inventories declining since May, even as demand from China remains weak.
This has led UBS to advise risk-seeking investors to take advantage of the current low prices by betting against further downside risks in crude oil.
