Oil Prices Drop over Weak US Demand Outlook
Oil prices dropped on Tuesday over a weak demand outlook in the US as the latest data showed a contraction in the manufacturing sector amidst the longest government shutdown.
The price also reflects the decision of eight members of the OPEC+ group, including both OPEC and non-OPEC producers, to postpone planned production increases in the first quarter of next year.
Brent crude was trading at $64.56 per barrel, down around 0.4% from the previous close of $64.81. The US benchmark West Texas Intermediate (WTI) also decreased by 0.4% to $60.66, compared to $60.90 in the prior session.
The eight members of the OPEC+ group, comprising Saudi Arabia, Russia, Iraq, the UAE, Kuwait, Kazakhstan, Algeria, and Oman, agreed Sunday to raise oil production by 137,000 barrels per day (bpd) in December.
Further production adjustment has been shifted from January to March 2026 due to seasonality, according to OPEC’s statement on Sunday. Investors interpreted the move as a signal of a potential supply surplus next year, putting downward pressure on prices.
The modest hike is part of a gradual rollback of the 1.65 million bpd voluntary cuts announced in April 2023 and comes amid “healthy market fundamentals” and low oil inventories.
Producers also reaffirmed their commitment to monitor market conditions and to keep flexibility to pause or reverse any changes, including the 2.2 million bpd voluntary reductions announced in November 2023. They previously approved a similar 137,000-bpd increase for November.
On the demand side, concerns about the US economy also weighed on prices. The Institute for Supply Management’s manufacturing Purchasing Managers Index (PMI) fell to 48.7 in October, below expectations, signalling continued contraction in the US factory sector.
The manufacturing sector has been contracting for eight consecutive months. The data reinforced expectations that industrial fuel demand could remain subdued as winter approaches.
Investors are focused on the American Petroleum Institute’s weekly US crude inventory data, due later today. The latest positioning data for ICE Brent shows that speculators bought 119,046 lots over the last reporting week to leave them with a net long of 171,567 lots as of last Tuesday.
Russia is a large exporter of diesel, and a combination of sanctions and Ukrainian drone attacks on refinery infrastructure will be raising supply concerns in the middle distillate market.
The latest data from Baker Hughes shows that the number of active oil rigs in the US fell by six over the last week to 414. The broader weakness in oil prices continues to weigh on drilling activity in the US.
However, despite the rig count being under pressure for most of this year, EIA data shows that US crude oil production still managed to hit a record high of 13.79m b/d in August, up 2.9% year-on-year and less than 1% higher month-on-month.
Expectations for a large surplus next year and downward pressure on prices suggest that the market will see US crude oil output struggling to grow in 2026. Zenith Bank Price Target Sets at N81 after Q3 Earnings
