Global benchmark Brent crude oil experienced a decline below $90 per barrel on Thursday during volatile trading, bringing a near two-week rally to a halt. Multiple indicators are suggesting weaker demand in the coming months.
Brent crude futures settled 68 cents lower, equivalent to a 0.8% drop, at $89.92 per barrel, following a trading range between $89.46 and $90.89.
U.S. West Texas Intermediate crude (WTI) futures ended the day down 67 cents, or 0.8%, at $86.67 per barrel, fluctuating between $86.39 and $87.74.
Thursday’s decline marked the end of nine consecutive sessions of gains for WTI and seven consecutive gains for Brent.
Earlier in the week, prices had surged after Saudi Arabia and Russia, the world’s top two oil exporters, extended voluntary supply cuts until the end of the year. These extensions came in addition to the cuts agreed upon in April by several OPEC+ producers, set to continue until the end of 2024.
Dennis Kissler, Senior Vice President of Trading at BOK Financial, commented on the situation, stating, “Crude futures are feeling some corrective pressure from a new high in the U.S. Dollar Index as well as more weakening economic numbers from the euro zone, where economic activity grew by 0.1% vs the 0.3% expected.”
The strengthening U.S. dollar contributed to this scenario, pushing the yen to a 10-month low and driving the euro and sterling to their weakest levels in three months. A stronger dollar increases the cost of purchasing oil denominated in dollars for holders of other currencies.
John Kilduff, Partner with Again Capital, expressed his view, saying, “As I begin to look down the road a bit, there are signals saying hold up.”
Market participants also reacted to mixed data from China. While overall exports fell 8.8% in August year-on-year and imports contracted by 7.3%, crude imports surged by 30.9%.
PVM Oil analyst Tamas Varga noted, “The wind has been taken out of the bulls’ sail overnight by rising Chinese product exports last month, albeit crude oil imports rose.”
Additionally, concerns about increasing oil output from Iran and Venezuela, which could offset some of the cuts made by Saudi Arabia and Russia, contributed to the market’s uncertainty.
Despite these factors, U.S. demand remained strong, with crude oil stockpiles decreasing by 6.3 million barrels last week, marking the fourth consecutive week of declines and a reduction of over 6% in the past month, according to government data.
Shanghai-based analyst Leon Li from CMC Markets remarked, “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.”
