Oil slips as IEA, OPEC cut near-term crude demand outlook

Oil dropped as demand forecasts show consumption falling in the near term, taking some of the edge off of concerns about tightening supplies heading into winter.  

West Texas Intermediate futures fell 1.2% to trade below $85 a barrel Tuesday. The International Energy Agency said global oil consumption is poised to contract by 240,000 barrels a day this quarter compared with a year ago. Earlier this week, OPEC cut its fourth-quarter demand forecast.

Consumption concerns extended deep into market guages, with the timespread for US crude falling to its weakest level in seven weeks.

“Chinese COVID containment is on most traders’ radar this morning along with OPEC’s lower demand forecast,” said Dennis Kissler, senior vice president at Bok Financial Securities. He warns of further liquidation until China makes a firmer decision on it’s Covid-19 policies.

While crude has lost about a third of its value since early June on economic slowdown concerns, the fundamental picture still remains tight. The Organization of Petroleum Exporting Countries and its allies have started trimming output and European Union sanctions on Russia will curb flows from December. With oil inventories in developed nations having fallen to the lowest since 2004, it leaves global markets vulnerable as sanctions on Russian exports take effect, according to the IEA’s monthly report.

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