- Oil prices hit their lowest level since August on Tuesday, with WTI crude below $80 a barrel.
- Economic data from China was mixed, while top OPEC+ producers are extending supply cuts.
- Oil prices have erased nearly all the gains that followed the start of the Israel-Hamas conflict.
Oil prices declined Tuesday to their lowest levels since August amid a medley of factors for the commodity.
West Texas Intermediate shed 2.2%, falling to $79.08 a barrel, while Brent crude, the international benchmark, moved lower 2.1% to $83.39 a barrel. In September, Brent neared $100.
Both oil benchmarks have also erased nearly all gains made since the outbreak of the Israel-Hamas conflict in the first week of October. Energy market traders seemed to have shrugged off the risk premium of a prolonged war, regional oil supply woes, and potential spillover effects.
“Traders still don’t see the current Middle Eastern hostilities spreading out and affecting supply,” David Morrison, senior market analyst at Trade Nation, said in emailed comments. “Instead, it’s the demand side which is the focus, with concerns of economic weakness in China and elsewhere capping prices.”
A mixed China outlook
China’s economic growth has faltered for months, and there’s still little sign of what had been a much anticipated post-pandemic rebound.
While China imported about 13.5% more crude this October compared to last, that’s partly due to COVID-19 lockdowns that were still in place a year ago.
Meanwhile, the world’s second largest economy saw its trade surplus drop unexpectedly last month, with exports falling 6.4% year over year and imports declining 6.2%.
Russia and Saudi Arabia
Supply cuts from OPEC+ put upward pressure on oil prices earlier this year, but its latest moves aren’t producing similar results.
Top producers Russia and Saudi Arabia have committed to maintaining their oil supply cuts until the end of the year, officials said this week.
According to a November 5 announcement, Saudi Arabia will carry on with its voluntary cut of 1 million barrels per day while Russia will keep its 300,000 barrels-per-day cut through December 2023. Both countries expect to review the decision again next month to decide whether to deepen those cuts or ramp production back up.
Higher-for-longer interest rates
With its 11 interest rate hikes since March 2022, the Federal Reserve has led other central banks in putting an end to the easy-money era.
That’s weighed on economic growth around the world as businesses struggle under a shifting monetary policy regime — which ultimately dampens oil demand.
“That we’re seeing data that confirms economies are struggling under the pressure of high interest rates which are not expected to decline soon may also have contributed to oil reversing its gains,” said OANDA senior analyst Craig Erlam. “It’s no surprise then that Saudi Arabia and Russia remain committed to their end-of-year cuts, it’s just a question of whether they will be extended. That they haven’t already perhaps suggests there’s some reluctance too, which may also be weighing on prices a little.”
