Oil prices experienced a downturn on Thursday, influenced by apprehensions regarding demand due to the seasonal deceleration in winter consumption and the uncertain economic outlook for China. These concerns outweighed the positive impact of expectations for tighter supplies, following extended production cuts in Saudi Arabia and Russia.
Brent crude futures retreated by 36 cents, settling at $90.24 a barrel by 0645 GMT, breaking a nine-session winning streak. Meanwhile, U.S. West Texas Intermediate crude (WTI) futures decreased by 37 cents to $87.17 a barrel, marking the end of seven consecutive sessions of gains.
Earlier in the week, both benchmarks had witnessed a surge in prices after Saudi Arabia and Russia, the world’s leading oil exporters, extended voluntary supply cuts through the end of the year. These extensions were in addition to the April cuts agreed upon by several OPEC+ producers, slated to run until the conclusion of 2024.
Analyst Leon Li of CMC Markets in Shanghai commented on the situation, stating, “At present, it is really difficult for us to see any negative factors due to supply constraints. However, we need to consider possible demand risks such as in the fourth quarter, the market could slow into an off-peak season for oil consumption after summer demand ends.”
Market participants also evaluated mixed economic data from China. Exports experienced an 8.8% decline in August compared to the previous year, while imports contracted by 7.3%. Notably, crude imports saw a robust increase of 30.9%.
Leon Li identified some promising signs for the Chinese economy, with the extent of declines in trade data being less than expected, and the Chinese government implementing measures to stimulate financial and real estate markets. However, it remains too early to gauge the pace of China’s demand recovery, even though it should have improved since July.
Concerns related to the potential surge in oil output from Iran and Venezuela, which could offset some of the cuts from Saudi Arabia and Russia, also weighed on the market sentiment.
The report stated, “OPEC+ action is being partially undermined by the return of sanctioned barrels from Iran. Iranian crude production has ranged higher in the year-to-date, reaching 2.83 million barrels per day (bpd) in July, up from 2.55 million bpd in January.” Additionally, the report noted the possibility of upside risks to Venezuelan production if U.S. officials consider easing sanctions in response to Caracas’ plans for new presidential elections.
Despite the downward pressure on prices, U.S. crude oil inventories were projected to have declined by 5.5 million barrels during the week ending September 1, according to market sources citing American Petroleum Institute data. Official inventory data from the U.S. Energy Information Administration was scheduled for release at 11 a.m. EDT (1500 GMT) on Thursday.
