Oil prices are falling again, affected by demand concerns

Crude oil storage tanks from above at the Cushing Oil Center, in Cushing, Oklahoma, US, March 24, 2016. REUTERS/Nick Oxford

NEW YORK (Reuters) – Oil prices extended their decline on Wednesday, driven by concerns that the global economy will slow further as restrictions are renewed to curb COVID-19 in China.

Brent crude futures for October, due to expire on Wednesday, settled at $96.49, down $2.82 a barrel, or 2.8%. The most active November contract lost $2.20 to $95.64 a barrel. US West Texas Intermediate crude futures closed down $2.09, or 2.3%, at $89.55 a barrel.

“The weakness from China has played an important role” in lowering prices, said Harry Altham, energy analyst for Europe, Middle East, Africa and Asia at StoneX Group in London. “There are fears of destruction of demand across the West as interest rates and inflation fears dominate Western economies.”

The market was mainly concerned about insufficient supply in the months following the Russian invasion of Ukraine and as OPEC struggled to increase production. This pushed short-term contracts into a steep premium over lagging futures earlier this year, but that pattern reversed somewhat as production increased.

Both OPEC and the United States have seen production reach its highest levels since the early days of the coronavirus pandemic, with OPEC production reaching 29.6 million barrels per day in the last month, according to a Reuters survey, while US production rose to 11.82 million barrels per day in June. Both are at their highest levels since April 2020. Read more

“The fear of a slowdown here and then the potential for some additional supply increases here, is putting some pressure on the market,” said Mike Sabo, market strategist at RJO Futures in Chicago.

The Joint Technical Committee of the Organization of the Petroleum Exporting Countries (OPEC) and its allies, called the OPEC+ community, said it now sees an oil surplus this year of 400,000 barrels per day, 100,000 barrels per day more than it forecast a month ago. Read more

Some OPEC+ members have called for cuts. The group is scheduled to meet after that on the fifth of September amid weak demand in Asia, which prompted Saudi Arabia to reduce the official selling prices for that region.

The US Energy Information Administration said on Wednesday that US crude stocks fell by 3.3 million barrels, while gasoline stocks fell by 1.2 million barrels.

Factory activity in China extended a downturn in August due to new coronavirus infections, the worst heat wave in decades and a beleaguered real estate sector affecting production, suggesting the economy will struggle to maintain momentum. Read more

Parts of the southern Chinese city of Guangzhou imposed restrictions on the spread of the Corona virus, on Wednesday, to join the technology center in Shenzhen in the fight against bombings. Read more

David Gavin reports in New York. Additional reporting by Julia Payne in London. Editing by Jonathan Otis

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