In Asian trade on Wednesday, oil prices continued to exhibit a soft tone, maintaining losses following a drop of over 3% in the previous session, leading to a six-month low. Brent crude futures for February slipped by 1 cent to $73.23 a barrel as of 0207 GMT, while U.S. West Texas Intermediate crude futures for January dipped 2 cents to $68.59 a barrel.
The market downturn was triggered by concerns over oversupply and weakening demand. In the wake of firmer-than-expected U.S. inflation readings for November, there is a growing perception that the Federal Reserve may not implement interest rate cuts early next year. This expectation, in turn, has raised apprehensions about potential impacts on consumption, contributing to the downward pressure on oil prices.
Analysts point out that the weekly average of Russian crude exports has surged to the highest levels since July, as reported by ANZ. This development has exacerbated concerns regarding oversupply and cast doubt on the effectiveness of the recent output cut agreement by the Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+.
Compounding the negative sentiment, the U.S. Energy Information Administration adjusted its forecast for oil supply in 2023, raising it by 300,000 barrels per day to reach 12.93 million barrels per day, according to its latest Short-Term Energy Outlook report. This revision further reinforces concerns of an oversupplied market.
With the current bearish outlook, oil prices are poised to extend their decline throughout the week, marking the continuation of a trend that has seen seven consecutive weeks of decreases. Market participants are closely watching developments, particularly the Federal Reserve’s decision, for any potential shifts in sentiment and their impact on oil prices in the near term.
