Onome Amuge
Oil prices fell to their lowest levels in more than four months on Wednesday, extending a three-day slide as mounting concerns over the US government shutdown and the prospect of higher OPEC+ output overshadowed fragile demand growth.
Brent crude, the international benchmark, dropped 68 cents, or 1 per cent, to $65.35 a barrel, its weakest close since early June. West Texas Intermediate, the US marker, slipped 59 cents, or 0.9 per cent, to $61.78, its lowest since late May.
The declines leave prices more than 12 per cent below their September peaks, as traders grow increasingly uneasy about the global economic outlook. The US government partially shut down on Wednesday after lawmakers failed to break a budget deadlock, stoking fears of weaker energy demand and delaying key economic data releases, including September’s jobs report.
“Crude stocks rose following a drop in exports, which were not as hot and could signal some weak demand. We already had a pretty big sell-off on the government shutdown and expectations that it could slow the economy and hurt demand,”said Phil Flynn, senior analyst at Price Futures Group.
The latest data from the Energy Information Administration showed US crude inventories rising by 1.8mn barrels last week, nearly double analyst forecasts. Gasoline futures also fell sharply, closing at their lowest in almost a year, underscoring signs of weakening consumption in the world’s largest economy.
At the same time, expectations are building that OPEC+ (the alliance of oil producers led by Saudi Arabia and Russia), will agree to a further increase in output when ministers meet next month. Sources told Reuters the group could authorise as much as a 500,000-barrel-per-day hike for November, triple October’s rise, as Riyadh seeks to defend market share.
The cartel sought to downplay speculation on Wednesday, posting on social media that reports of a large increase were misleading. An OPEC+ monitoring panel nevertheless reiterated the need for full compliance with existing cuts and for members that exceeded quotas earlier this year to make deeper reductions.
For US shale producers, the slide in prices is already raising red flags. Travis Stice, chief executive of Diamondback Energy, warned that drilling activity would slow if crude hovered near $60 a barrel. “Fewer drilling sites are profitable at that level,” he said, highlighting the vulnerability of marginal production in the Permian basin.
The combination of fragile demand, rising inventories, and potential new supply leaves oil markets under pressure as the final quarter of the year begins. Analysts at Rystad Energy noted that demand is easing both in the US and in Asia, while OPEC+ is still leaning toward additional supply.
With Washington mired in political gridlock and global growth forecasts under review, traders say volatility is likely to remain elevated in the coming weeks.
