Oil price sees muted decline as production cuts clash with China slowdown fears

6 Mar 2024 , 09:50 AM

On Wednesday, oil prices marginally decreased as indications of a tightening supply due to major producers’ output curbs collided with worries about demand growth in China, the world’s largest crude importer.

A declining US dollar helped to support prices by increasing demand from purchasers willing to pay with foreign currencies.

US West Texas Intermediate crude prices dropped 11 cents to $78.04 a barrel, while Brent crude futures slid 13 cents to $81.91 a barrel.

China’s economic growth target for 2024, which was announced on Tuesday at about 5%, raised worries that demand growth in the nation may lag this year because it did not include significant stimulus programmes to support the faltering economy of the nation.

The recent decline in Treasury yields, which also put pressure on oil prices, highlighted the ‘risk off’ character of trading. Due to growing expectations for a US interest rate cut in June, gold prices reached a record high on Tuesday.

Nevertheless, the depreciating US dollar and the news on Sunday that the Organisation of the Petroleum Exporting Countries (OPEC+) and its allies had decided to prolong its 2.2 million barrels per day output reduction to the end of the second quarter helped to keep oil prices higher.

The prolongation has resulted in some supply constraints, especially in Asian markets, in addition to the interruption of oil tanker movements caused by the Houthi militia’s attacks in Yemen’s Red Sea, which are tying up barrels in transit.

The world’s largest oil exporter, Saudi Arabia, revealed on Wednesday slightly higher pricing for April crude shipments to Asia, its largest market, which was indicative of the physical tightness.

According to market reports, the American Petroleum Institute industry organisation released the first of this week’s two US inventory reports. It revealed that US crude stocks increased by 423,00 barrels in the week ending March 1, which was significantly less than the 2.1 million barrel gain that analysts had predicted in a Reuters poll.

The reports stated that the API data indicated a 2.8 million barrel decline in petrol stockpiles and a 1.8 million barrel decline in distillate fuel supplies.

On Wednesday at 10:30 a.m. ET (1530 GMT), the US Energy Information Administration is expected to release official figures. In the event that the EIA publishes a gain in crude storage, this will be the nation’s sixth consecutive week of rising oil stocks.

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