Oil Crashes to 15-Month Low on Worsening Demand Outlook
Crude oil plunged anew on Thursday, as signs of slowing demand in key consumer regions weighed on the black commodity. The Organization of the Petroleum Exporting Countries (OPEC) is expected to publish new production quotas shortly in an attempt to provide transparency on recently agreed output cuts.
Oil was down across the board in the latter half of the week, as the selloff that engulfed the market back in October shows no signs of abating. Brent crude, the international benchmark, fell by as much as 4.5% to $54.64 a barrel, the lowest level in 15 months. The contract was last down $1.64, or 2.9%, at $55.60 a barrel on London’s ICE futures exchange.
The West Texas Intermediate (WTI) benchmark for U.S. crude futures bottomed at $45.82 a barrel on the New York Mercantile Exchange, its lowest since November 2017. WTI futures are presently down $1.60, or 3.3%, at $46.57 a barrel.
Oil prices have lost a third of their value since early October, marking one of the worst downturns since 2014. Market fundamentals suggest more losses are likely as traders grapple with a worsening demand outlook.
An abundance of crude is being met with declining demand from emerging markets like China and India, a dangerous combination for commodity traders. Analysts at JBC Energy, an Austrian consulting firm, believe oil demand growth will fall to 888,000 barrels per day next year, the slowest since 2011. Strong demand from emerging Asia, which accounts for more than two-thirds of consumption growth, can no longer be taken for granted.
China is also increasing efforts to replace gasoline-fueled automobiles with new electric models, which may lessen its demand for fossil fuels in the future. According to The Wall Street Journal, India will overtake China as the largest source for oil demand by the mid 2020s.
The Organization of the Petroleum Exporting Countries and its allies are expected to reveal new production quotas sometime in the near future, according to Reuters.
“In the interests of openness and transparency, and to support market sentiment and confidence, it is vital to make these production adjustments publicly available,” OPEC Secretary General Mohammad Barkindo told OPEC members in a letter, as quoted by CNBC.
He added: “I would urge Your Excellencies to kindly make positive announcements reinstating your countries’ commitment to implementing the agreed decisions. This is also vital to underpin trust in our decisions and to buttress ourselves from any naysayers who may doubt our commitment.”
The cartel, along with Russia and its partners, agreed earlier this month to curb crude production by 1.2 million barrels per day. The announcement provided a short-term relief rally for crude but failed to win over traders still skeptical about how the cuts will be administered.
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