Weekly drops in oil prices are expected due to weakening demand in Asia

8 Dec 2023 , 11:36 AM

Early on Friday, oil prices increased, but they were still expected to drop 6% for the week and were close to six-month lows as investors were concerned about the combination of increasing U.S. crude production and sluggish energy demand in Asia.

U.S. West Texas Intermediate crude futures gained 64 cents, or 0.9%, to $69.98 a barrel, while Brent crude futures increased by 68 cents, or 0.9%, to $74.73 a barrel.

In the previous session, both benchmarks fell to their lowest levels since late June. Additionally, Brent and WTI are in a market structure known as contango, in which front-month prices trade at a discount to prices six months later, suggesting that traders may have concluded the market is oversupplied.

This week’s decline in the oil market has been spurred by worries about China’s economy.

Crude oil imports decreased by 9% in November compared to the same month last year, according to Chinese customs data. This decline was caused by high inventories, poor economic indicators, and a slowdown in orders from independent refiners.

Reduced travel in the world’s third-largest oil consumer, India, caused petroleum consumption to decline in November after peaking for four months the previous month. This was due to the fizzle of the festive season.

OPEC+, the Organization of the Petroleum Exporting Countries, and its partners recently agreed to reduce supply, yet despite this, Brent and WTI oil futures are expected to decline 5.8% and 6% for the week, respectively.

For the first quarter of the next year, OPEC+ decided to reduce its collective output by 2.2 million barrels per day (bpd).

The two largest oil exporters, Saudi Arabia and Russia, urged all OPEC+ members to sign onto the output reduction agreement on Thursday in order to benefit the world economy.

According to data released on Wednesday by the U.S. Energy Information Administration, output in the country continued to be close to record highs of over 13 million barrels per day.

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