Oil prices plunged by over 4% on Tuesday due to concerns about “demand destruction” and China’s weak export numbers, which highlight a slowdown in global demand.
West Texas Intermediate (WTI) crude oil prices settled 4.3% lower at $77.37 per barrel, while Brent crude futures also saw a significant drop of 4.19% to $81.61 per barrel.
This price decline coincided with the release of data from China, revealing a 6.4% year-on-year decrease in exports for October, despite a 3% rise in imports. China, as the world’s largest oil consumer, plays a crucial role in influencing global oil prices.
Oil futures have experienced daily price swings of more than 2% in recent weeks, largely driven by factors such as escalating tensions in the Middle East due to events like the surprise attack on Israel by Hamas. However, these fluctuations have contributed to a broader downward trend over the past two weeks as market participants increasingly focus on concerns related to weakening demand.
Dennis Kissler, Senior Vice President at BOK Financial’s trading division, noted, “The market continues to be more focused on demand destruction than escalating war tensions.”
Furthermore, Moscow and Saudi Arabia have recently reaffirmed their self-imposed production cuts, which had been boosting oil prices until September. Despite these efforts, Bloomberg data has revealed that Russian oil exports have reached a four-month high, leading to suspicions of non-compliance with the agreed production limits. Kissler commented, “While the Saudi and Russian supply cuts are now penciled into year-end, there may be some cheating being noted,” suggesting that Russia might be exporting more crude than it officially declares.
OPEC+, a coalition of major oil-exporting nations, is scheduled to convene later this month. During this meeting, Saudi Arabia and Russia may decide to extend their voluntary production cuts into the following year. These cuts are in addition to the production reductions already agreed upon by the rest of the oil cartel, which are set to remain in effect until 2024.
Lastly, the US dollar index (DX-Y) saw an increase on Tuesday, adding further pressure on crude oil prices. Since oil is denominated in US dollars, a stronger dollar tends to make oil more expensive for international buyers, potentially leading to reduced demand.
