Oil prices plunge on demand concerns

Oil prices continued to decline on Thursday, weighed down by demand concerns, with WTI price dropping to $82.5 per barrel. If WTI price declines, it may encounter support near $79.5 per barrel, while resistance may be found near $95.3 per barrel.

The U.S. Energy Information Administration reported a drop in U.S. gasoline demand, putting pressure on oil prices. Macroeconomic data this week indicated that the global economic outlook is worsening, driving the oil demand outlook down. The US Services sector is slowing down, and the US labor market is weakening. The diminishing demand outlook has offset supply concerns and oil prices dropped sharply.

The OPEC+ organization meeting on Wednesday went off without any surprises. The producer group kept its output policy unchanged, maintaining its recent cuts by Russia and Saudi Arabia, which have already been extended till the end of the year. Market fears about fresh production cuts failed to materialize and oil prices plummeted. 

Supply concerns have been boosting oil prices. Russian authorities have decided to restrict diesel and gasoline exports to stabilize domestic fuel prices. However, Russia decided to relax last week's fuel ban, assuaging supply concerns. Russia lifted restrictions on certain fuel types, specifically fuel used as bunkering for some vessels and diesel with high Sulphur content. 

U.S. crude oil inventories dropped by 2.2M barrels in the week to September 29th exceeding expectations of a small 0.1M barrel drop, according to data released by the Energy Information Administration. 

Oil prices are also kept in check by a strong US dollar and high-interest rates. The oil demand outlook has declined as the Fed has hinted at further tightening. The Fed decided to pause rate hikes at its September policy meeting, but that does not necessarily mean it has reached its rate ceiling. Even if the Fed has reached its interest rate ceiling, rates are likely to stay high for longer to bring inflation down. 

Deterioration in China’s economic outlook is also keeping oil prices down. Uncertainty over China’s economic recovery has put a cap on oil prices. China is the world’s largest importer and a weaker Chinese oil demand outlook has put pressure on oil prices. The World Bank on Monday forecast China’s growth for 2023 at 5.1%, up from 3% in 2022 but still representing a slowing growth pace since April.

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Written by:
Myrsini Giannouli

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