Onome Amuge
Oil prices dropped sharply on Thursday, with traders weighing forecasts of rising global supply against heightened geopolitical risks in the Middle East and Ukraine.
Brent crude, the international benchmark, slid $1.12, or 1.7 per cent, to settle at $66.37 a barrel. US marker West Texas Intermediate (WTI) shed $1.30, or 2 per cent, to $62.37. The decline, the heaviest in almost a week, extended a string of losses that have left prices at their lowest levels in two months.
The sell-off followed the International Energy Agency’s (IEA) monthly report, which projected that oil supply would grow more rapidly than expected this year as Opec and its allies move ahead with plans to increase output. The report warned that swelling inventories and higher production would outweigh concerns about supply disruptions stemming from global conflicts.
“Oil prices are falling today in response to bearish IEA headlines, which suggest massive oversupply on the oil market next year,” said Carsten Fritsch, analyst at Commerzbank.
While Opec+ agreed last weekend to raise production from October, the cartel itself struck a more cautious tone. In its latest assessment, Opec kept forecasts for both global demand and non-Opec supply unchanged, citing resilient consumption in Asia and steady industrial activity.
But analysts said markets remain torn between two competing narratives: the risk of shortages triggered by instability in the Middle East and Ukraine, and the reality of mounting inventories from higher output.
Tamas Varga, analyst at PVM Oil Associates, said: “The market is caught between fears of disruptions and the much more visible build-up of supply. The balance at the moment is tilting towards the latter.”
Saudi Arabia, Opec’s de facto leader, is poised to ship sharply higher volumes to China in October, with state oil giant Aramco expected to allocate 1.65 million barrels per day, up from 1.43 million bpd in September, according to trade sources. That increase, combined with record US output, has reinforced expectations of oversupply heading into year-end.
Yet there are questions over how long China can continue to absorb additional barrels without swelling global inventories. Giovanni Staunovo, analyst at UBS, noted: “China has been a crucial outlet for surplus barrels, but there is uncertainty about its capacity to keep OECD stocks low in the months ahead.”
The IEA also reported that Russia’s revenue from crude and oil product sales fell in August to its lowest levels since the early months of the Ukraine war, reflecting the impact of western sanctions and a cooling export market.
US energy secretary Chris Wright and EU energy commissioner Dan Jorgensen met in Brussels this week to discuss curbing Russia’s remaining oil revenues. Jorgensen described the EU’s sanction deadlines as ambitious but insisted they needed to be accelerated.
Elsewhere, India’s Adani Group, the country’s largest private port operator, has barred entry to tankers sanctioned by western countries. The decision, analysts observed, could complicate deliveries of Russian oil to two Indian refiners, highlighting the fragility of Moscow’s pivot to Asia.
On the demand side, US economic signals offered mixed implications for oil markets. Consumer prices rose in August at the fastest pace in seven months, largely driven by housing and food costs. At the same time, a rise in jobless claims reinforced expectations that the Federal Reserve will cut interest rates next week to stimulate growth.
In Europe, the European Central Bank left interest rates unchanged, as anticipated, but gave no indication of its next move. Investors have curbed expectations of another rate cut this cycle, reflecting uncertainty over whether the eurozone economy requires additional stimulus.
For now, oil markets are struggling to reconcile divergent forces, including rising output and inventory builds on one side, and volatile geopolitics and uncertain macroeconomic policy on the other. Analysts say the next few weeks will prove crucial, with Opec+ production changes, Chinese import patterns, and central bank decisions all shaping sentiment.
“Unless we see a significant escalation of conflict in the Middle East, the oversupply narrative is likely to dominate. That will keep prices under pressure despite intermittent geopolitical spikes,” said Fritsch of Commerzbank.
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