Oil drops on OPEC+ doubts, China demand concerns

Oil prices persist in declining on Wednesday as investors assess the impact of an extension in OPEC+ cuts on tightening supply amidst a deteriorating demand outlook in China.

Brent crude futures dropped 0.82% to $76.57 a barrel, and U.S. WTI crude futures fell 0.8% to $71.74 a barrel.

OPEC+ agreed on voluntary output cuts of approximately 2.2 million barrels per day (bpd) for the first quarter of 2024.

Saudi and Russian officials mentioned this week that the cuts could be extended or intensified beyond March.

However, both benchmarks closed at their lowest level since July 6 in the previous session, marking a four-day streak of losses.

“The decision to further reduce output from January failed to stimulate the market and the recent, seemingly coordinated, assurances from Saudi Arabia and Russia to extend the constraints beyond 1Q 2024 or even deepen the cuts if needed have also fallen to deaf ears,” said PVM analyst Tamas Varga.

Saudi Arabia reduced its official selling price (OSP) for flagship Arab Light to Asia in January, marking the first decrease in seven months. This adjustment in OSPs might indicate a challenge in gaining traction in demand for barrels, according to Varga.

Worries about China’s economic well-being, potentially constraining overall fuel demand in the second-largest oil consumer globally, exerted downward pressure on prices.

Moody’s downgrades China’s outlook to negative.

China is set to release preliminary trade data, including crude oil import figures, on Thursday. Earlier expectations suggested a decline in China’s refinery runs for November.

Russian President Vladimir Putin visited the United Arab Emirates and Saudi Arabia on Wednesday to meet with the UAE’s President Sheikh Mohammed Bin Zayed Al Nahyan and Saudi Crown Prince Mohammed bin Salman.

During his meeting in Abu Dhabi, Putin discussed Russia and the UAE’s cooperation in OPEC+ and other significant oil and gas projects.

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