Oil prices have continued trending downward on Tuesday to the lowest level in six months. The decline was prompted by the latest surge in consumer prices and broader market outlook concerns stemming from swelling supply levels.
Oil Prices Hit 6-Month Low
Oil prices extended their recent declines on Tuesday, plunging to six-month lows amid growing concerns about oversupply and an unexpected surge in inflation data for November.
Brent crude futures for February fell to $73.24 per barrel on the day, down 3.7%, while the West Texas Intermediate (WTI) January futures slid 3.8% to $68.61 a barrel.
As we advance, analysts predict a gloomy outlook for the oil market, citing “higher for longer” rates that will continue to restrict economic growth. OPEC and the International Energy Agency (IEA) updated their forecast this week, predicting slower oil demand growth in 2024, although the two organizations had mixed views.
“Negative sentiment towards the oil complex is still overpowering at the moment.”
– said Kpler analyst Matt Smith.
The IEA reduced its 2024 price forecast for Brent crude by $10 per barrel. In line with this updated outlook, Brent would average $83 a barrel next year, compared to $93 per barrel forecasted in the previous monthly report.
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Why are Oil Prices Declining?
The primary catalyst driving oil prices lower recently is the strengthening supply side compared to demand. Even though global oil demand is sitting at all-time highs and may increase further next year, the increase in crude supplies is weighing on prices.
The US is already pumping record oil levels into the market, and that trend is projected to extend into 2024. Meanwhile, OPEC+ has recently extended and deepened its production cuts, but the move failed to prevent oil price losses.
On top of all that, the latest batch of data showed that US consumer prices saw an unexpected rise in November, led by significantly high rent costs. The data provided further evidence that the Federal Reserve is unlikely to begin cutting interest rates in early 2024, despite broader expectations, leading to a tighter outlook for crude oil in the near term.
The COP28 climate summit headed into overtime on Tuesday as negotiators awaited a new draft deal after numerous member countries described the previous version as too soft, saying it disregarded a “phase-out” of fossil fuels. This push could negatively affect oil demand growth as countries intensify efforts to embrace renewable energy.
Can a rebound in oil demand be expected in 2024 despite current predictions? Let us know in the comments below.
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