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SunSirs: Five Consecutive Declines in Crude Oil, Hitting a New Low in the Past Six Months
December 08 2023 09:55:13SunSirs(Selena)

On December 6th, international crude oil futures prices plummeted by over 4%, reaching a new low in nearly half a year. The settlement price of the main WTI crude oil futures contract in the United States was $69.38 per barrel, a decrease of $2.94 or 4.1%. The settlement price of Brent crude oil futures main contract was $74.30 per barrel, a decrease of $2.90 or 3.8%. The main reason is that the market is increasingly concerned about future energy demand.

Last week, the increase in finished oil storage in the United States exceeded expectations

On Wednesday, the US Energy Information Agency (EIA) regularly released inventory data. Especially with the surge in gasoline inventories, this has exacerbated the market's bearish sentiment towards fuel demand.

As of the week ending December 1st, US gasoline inventories increased by 5.4 million barrels, more than five times higher than analysts had expected an increase of 1 million barrels. US gasoline futures have fallen to their lowest point in two years. Once the data was released, it exacerbated the decline in the oil market. Although crude oil inventories have shown a decline, it has not yet reversed the bearish sentiment in the market. Specifically, last week, US crude oil inventories decreased by 4.633 million barrels to 4,455.3 million barrels, the largest decrease since the week on September 1st, ending the six consecutive weeks of increase. The market estimates a decrease of 1.4 million barrels.

Doubts about OPEC+ Deepening Production Reduction Efforts in Oil Producing Countries

On November 30th, the meeting of the Organization of the Petroleum Exporting Countries and its allies (OPEC+) was held, but the reduction in production did not tighten as expected by the market. OPEC+ announced an additional 2.2 million barrels per day production reduction in the first quarter of 2024, including 1 million barrels per day in Saudi Arabia and 300,000 barrels per day previously continued by Russia. Other member countries have voluntarily reduced their production quotas by the remaining 900,000 barrels. Firstly, the deepening of production reduction efforts is limited. Secondly, due to the voluntary nature of production reduction, the market has doubts about its implementation. This is undoubtedly a bearish news for the supply side, as there is currently a lack of substantial positive news on the supply side. Since last week, oil prices have continued to decline, achieving a "five consecutive declines".

Weak economic data performance and increased demand pressure

The Federal Reserve will hold a meeting on interest rates next week, and the market is generally expected to maintain the current interest rate policy unchanged. It is possible that interest rates will start to be lowered in March next year, mainly due to the market's belief that the current US economic growth is weak. In addition, the US employment report released by the American Automated Data Processing Corporation (ADP) in collaboration with Stanford Digital Economy Laboratory on Wednesday showed that the number of ADP jobs in the US increased by 103,000 in November, weaker than the expected 130,000, indicating that the labor market is cooling down. Currently, the market is waiting for the November non farm employment report.

In addition, data released by the US Department of Commerce on Wednesday showed that the decline in US exports led to the US trade deficit widening to $64.3 billion in October, and the market showed more concerns about the US economic growth in the fourth quarter.

SunSirs crude oil analysts believe that currently, both macro and supply and demand sides of the oil market lack substantial positive news, and in the short term, oil prices may still face downward pressure. In the medium term, OPEC+will continue to play its role in stabilizing oil prices and regulating the market. There is also data indicating a decrease in OPEC+11 production, marking the first monthly decline recorded since July. In the medium term, it is not ruled out that OPEC+ will continue to deepen its production reduction policy. The future supply-demand game will continue. The probability of wide fluctuations in oil prices has increased.


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