Oil Prices Drop Below $88 on Negative Demand Outlook

Oil Prices Drop Below $88 on Negative Demand Outlook

Oil prices dropped further on Wednesday due to a slowdown in demand amidst weak economic data from Europe and intensified diplomatic efforts to settle the Israel-Palestine conflict. Global benchmark Brent crude traded at $ 87.97 per barrel, down by 0.11% from the closing price of $88.07 a barrel in the previous trading session.

The American benchmark West Texas Intermediate (WTI) traded at the same time at $ 83.50 per barrel, down 0.28% from Tuesday’s close of $83.74 per barrel. MarketForces Africa reported that crude oil prices dropped on Tuesday, giving up nearly half of the gains made since the Hamas attack on Israel as the short-term risk premium somewhat diminished.

Brent prices settled at around US$88 as the risk premium diminished yesterday as the demand outlook remains unimpressive.

Crude oil prices have given up nearly half of the gains made after the Hamas attack on Israel. The risk of an escalation cannot be ruled out, but economic concerns weigh on prices in the short term.

The Eurozone manufacturing purchasing managers’ index (PMI), which measures the activity of managers in the manufacturing sector, released on Tuesday, has raised concerns that a recession in the region will impact oil demand negatively.

Data pointing to the slowdown in major economies such as Germany and the UK also cast doubts over oil demand. The investors are waiting for the European Central Bank’s monetary policy decisions and the statements of Central Bank President Christine Lagarde after the meeting on Thursday.

Meanwhile the efforts to put an end to the escalating tension between Israel and Palestine supported downward price movements, decreasing the concerns that the Middle East turmoil will disrupt oil supply routes.

The release of Israeli hostage, Yocheved Lifshitz on Tuesday after held in captivity for two weeks by Hamas, in which she praised the Palestinian resistance group, also contributed to the narrative that the tension might ease.

However, further price declines were limited by the American Petroleum Institute’s (API) announcement on Tuesday, estimating a draw in US crude oil stockpiles of 2.6 million barrels, against the market expectation of a rise of 1.5 million barrels.

A decrease in inventory implies an increase in crude demand in the US, assuaging market concerns over falling demand.

The data released by S&P Global showed that the US manufacturing PMI in October rose to its highest in six months, also limited price declines. The PMI added 0.2 points to 50.0 in October, up from 49.8 in September, according to flash estimates by the financial services company.

The market expectation for manufacturing PMI, which recorded its highest level since April, was 49.5. A reading below 50 represents contraction, while above 50 indicates expansion in the sector.

The Commodities Feed: Risk premium for oil diminishes –ING

The weekly report from the American Petroleum Institute was largely supportive of the oil market. The API reported that US crude oil inventories decreased by 2.7MMbbls over the last week, higher than the market expectations of around 0.5MMbbls.

Cushing crude oil stocks are reported to have increased by 0.5MMbbls. On the products side, API reported that gasoline and distillates inventories fell by 4.2MMbbls and 2.3MMbbls, respectively.

The discount of Western Canada Select crude oil over the WTI benchmark increased to US$24.5 this week, the biggest discount since January 2023, as crude oil supply from Canada continues to improve amid constrained pipeline capacity.

After major supply disruptions over the second quarter of the year due to wildfires, crude oil production has been recovering steadily, increasing the av availability of crude oil for shipments which, in turn, weighed on prices. Morocco’s Inflation Slows, Govt Plans $62bn Budget