Demand Worries Prevail as Oil Incurs More Steep Losses

Meanwhile, India blames OPEC for contributing to demand woes: File Image/Pixabay

Oil extended its losses on Thursday, albeit at a  less severe rate than in the previous session’s calamitous trading, due to persistent fears that demand destruction may be in effect across the globe.

Cause of these worries stemmed from JP Morgan analysts earlier stating in a note that a 30 percent spike in fuel prices in the third quarter of this year depressed demand, resulting in a counter seasonal plunge of 223,000 barrels per day (bpd); the note was titled ‘Demand destruction has begun (again)’ and also included the statement that “demand restraint from rising oil prices is once again becoming visible in the U.S., Europe, and some EM countries.”

Crude on Thursday dropped $1.74 to settle at $84.07, while West Texas Intermediate dove $1.91 to settle at $82.31 per barrel.

Bob Yawger, director of energy futures at Mizuho, said, "This is typical speculative trading activity - trying to make the best out of a bad situation after the bloodbath on Wednesday, and they [market participants] are trying to pick the bottom."

Dennis Kissler, senior vice president of trading at BOK Financial, added, "The market is searching for an equilibrium," and he went on to note that hedge fund liquidated heavily on fears that higher interest rates with inflation would ruin fuel demand.

Not to be outdone, Rebecca Babin, a senior energy trader at CIBC Private Wealth, remarked that, “The speed of the selloff was also driven by the length in the market that had built up over the last month: many of the new longs buying into the $100 crude trade were low-conviction momentum traders who are easily spooked out of the market.”

Also on Thursday, Saudi Arabia raised the price of its flagship crude for customers in Asia for a fifth month, following announcements from the kingdom and Russia that their voluntary production cuts would remain in place through the end of the year.

Meanwhile, Hardeep Singh Puri, oil minister of India, told media that while it is the right of the Organization of the Petroleum Exporting Countries (OPEC) to decide how much oil they will pump, they should not be “unmindful of the consequences, and it can become a self-fulfilling prophecy, that the demand will drop because people don't have the capacity to sustain it.”

Puri went on to say that “Cumulatively, OPEC & OPEC+ have reduced the availability of oil by 4.96 million bpd, comprising 5 percent of global oil demand, from the market since 2022, spiking Brent prices from $72 per barrel in June to $97 per barrel in September 2023.

“These measures have unintended consequences.”