Oil prices extended their slide on Wednesday, led lower by worries that the global economy would slow further with renewed restrictions 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 more active November contract lost $2.20 to $95.64 a barrel. U.S. West Texas Intermediate (WTI) crude futures ended down $2.09, or 2.3%, at $89.55 a barrel.
“The weakness coming out of China has played a significant role” in lowering prices, said Harry Altham, energy analyst for EMEA & Asia at StoneX Group in London. “There are fears of demand destruction across the West as interest rates rise and inflation concerns grip Western economies.”
The market has been primarily concerned with inadequate supply in the months following Russia’s invasion of Ukraine and as OPEC struggled to increase output. That drove near-term contracts to a sharp premium over later-dated futures earlier this year, but that pattern has reversed somewhat as output has increased.
Both OPEC and the United States saw production hit its highest levels since the early days of the coronavirus pandemic, with OPEC’s output hitting 29.6 million barrels per day (bpd) in the most recent month, according to a Reuters survey, while U.S. output rose to 11.82 million bpd in June. Both are at their highest levels since April 2020.
“The fear that there’s a slowdown here and then also the potential here for some additional supply increases coming down the pike is having 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 allies, together called OPEC+, said it now sees an oil surplus this year of 400,000 bpd, up 100,000 bpd from its forecast a month earlier.
Some OPEC+ members have called for cuts. The group is next due to meet on Sept. 5 amid weakening demand in Asia that spurred Saudi Arabia to lower its official selling prices to that region.
U.S. crude stocks fell by 3.3 million barrels, the U.S. Energy Information Administration said Wednesday, while gasoline stocks were down 1.2 million barrels.
China’s factory activity extended declines in August due to new COVID infections, the worst heat wave in decades and an embattled property sector that weighed on production, suggesting the economy will struggle to sustain momentum.
Parts of China’s southern city of Guangzhou imposed COVID curbs on Wednesday, joining the tech hub of Shenzhen in battling flare-ups.
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