By Adedapo Adesanya
It was not a pleasant day for the oil market on Wednesday as it went down by more than 5 per cent amid fuel demand destruction and a worrying macroeconomic outlook affected the market.
Brent crude oil futures lost $5.11 or 5.6 per cent to settle at $85.81 a barrel while US West Texas Intermediate crude (WTI) fell by $5.01 or 5.6 per cent to $84.22 per share.
Fuel demand in the world’s largest consumer, the US fell last week to about 8 million barrels per day, its lowest since the start of this year, the US Energy Information Administration (EIA) reported Wednesday.
According to analysts, some of that demand drop could be due to rains which brought flooding to New York last Friday and post-tropical storm Ophelia, which doused the Northeast with torrential downpours in late September.
The EIA reported that inventories had shed 2.2 million barrels in the week to September 29 compared with a draw of the same size estimated for the previous week by the EIA.
Oil prices were already under pressure from high US Dollar combined with a pessimistic outlook for the global economy to pressure benchmarks.
A tight market combined with the decision by the Organisation of the Petroleum Exporting Countries and its allies (OPEC+) to maintain its production cuts failed to counter bearish sentiment.
The OPEC+ committee said it will continue to closely assess market conditions, adding that the panel recognised and acknowledged the Saudi and Russian cuts.
Saudi Arabia also confirmed it will continue its voluntary 1 million barrels per day crude supply cut until year-end, while Russia said it will continue its 300,000 barrels per day crude export cuts, and in November will review its voluntary 500,000 barrels per day output cut set in April.
Russian Deputy Prime Minister Alexander Novak said the Saudi and Russian cuts have helped to balance oil markets, and said the domestic market benefited from the Kremlin’s diesel and gasoline export ban.
The downward pressure on prices, which began last week with profit-taking from institutional investors, appears to have built some serious momentum.
Economic news also pressured oil prices as growth in the US services sector slowed in September, data showed.
According to the US Institute for Supply Management (ISM), its non-manufacturing PMI slipped to 53.6 last month from 54.5 in August. A reading above 50 indicates growth in the services industry, which accounts for more than two-thirds of the economy. It was in line with economists’ expectations.
The demand for services is being underpinned by a shift in spending away from goods amid higher interest rates.
