Oil prices drop on renewed demand concerns

Oil prices fell on Wednesday as demand fears stemming from macroeconomic headwinds offset Saudi Arabia’s announcement that it will continue to cut crude output until the end of 2023.

Brent crude oil futures were down 58c, or 0.64%, to $90.34 a barrel at 8.41am GMT, while West Texas Intermediate (WTI) fell 66c, or 0.74%, to $88.57.

Both contracts traded more than $1 lower than Tuesday’s settlement price at their intraday low on Wednesday, with Brent falling to $89.83 a barrel, and WTI to $88.11.

“Oil prices are resuming their decline amid concerns over high interest rates for longer, hurting the demand outlook and as investors look ahead to the Opec meeting”, said Fiona Cincotta, analyst at City Index.

Saudi Arabia’s energy ministry confirmed on Wednesday it will continue its voluntary 1-million barrels a day crude supply cut until the end of this year.

Russia said it will continue its 300,000 bbl/day crude export cuts until the end of the year, and will in November review its voluntary 500,000 bbl/day cut that was set in April.

Russia was also discussing partial permission for fuel exports “at all levels”, state-run Tass news agency reported on Wednesday, citing Russian energy minister Nikolai Shulginov.

Russia could be ready to ease its diesel ban within days, according to a daily Kommersant report on Wednesday, which cited unidentified sources.

A strong dollar could also be weighing on investor sentiment.

The current dollar strength is “a rally that will continue to haunt all markets including oil, even when, as is now, there is a compelling fundamental backdrop,” PVM analyst John Evans said.

As the trade currency of oil, a strong dollar makes oil comparatively expensive for holders of other currencies, which can damp demand.

Elsewhere, the latest purchasing managers’ index data (PMI) showed a score of 47.2 in September for the eurozone, edging higher from 46.7 in August. A reading below 50 implies economic contraction.

Reuters