Oil slips as demand worry trounces prospect of cuts

Tokyo — Oil futures eased on Tuesday, reversing the previous day’s rally, as concern over weaker demand amid a slowing global economy outweighed the prospect of deepening supply cuts by Opec and its allies such as Russia.

Brent crude futures fell 19c, or 0.2%, to $82.13 a barrel by 12.13am GMT while US West Texas Intermediate crude was at $77.68 a barrel, down 15c, or 0.2%.

Both contracts climbed about 2% on Monday after three Opec+ sources told Reuters that the producer group, made up of oil cartel Opec and its allies, is set to consider whether to make additional oil supply cuts when it meets on November 26.

“Since worries on the demand side have not been dispelled, investors took a wait-and-see attitude to confirm the actual Opec+ decision,” said Tsuyoshi Ueno, senior economist at NLI Research Institute.

“Going forward, the market will focus on US and Chinese economic indicators and US crude oil inventory levels to assess global demand trend,” Ueno said, adding that investors will also consider a weakening dollar, which will provide support for oil prices.

The oil market has dropped almost 20% since late September as crude output in the US, the world’s top producer, held at record highs, while the market was concerned about demand growth, especially from China, the number one importer of oil.

Traders were also watching for signs of demand destruction from a possible US recession in 2024 and considering last week’s warning about possible deflation from Walmart, the largest US retailer.

US crude and gasoline stockpiles likely rose last week, while distillates inventories were seen dropping, a preliminary Reuters poll showed on Monday. A weekly report from the American Petroleum Institute is due later on Tuesday, and from the Energy Information Administration is due on Wednesday.

On the supply side, the Opec+ is likely to extend or even deepen oil supply cuts into 2024, eight analysts have predicted.

Among the analysts, Goldman Sachs said that based on its statistical model of Opec decisions, deeper cuts should not be ruled out given the fall in speculative positioning and in timespreads, and higher-than-expected inventories.

Reuters