Demand Fears Trump Supply Hopes, Oil Prices Dip

Oil Futures: Market Trends and OPEC+ Supply Cut Speculations

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TOKYO, Nov 21 - Oil futures saw a modest dip on Tuesday, reversing the previous day's surge, as concerns surrounding a softer global economy tempered the excitement about potential increased supply cuts by OPEC and its partners, including Russia.

Brent crude futures edged down by 19 cents, or 0.2%, reaching $82.13 per barrel by 0013 GMT, while U.S. West Texas Intermediate crude stood at $77.68 per barrel, down by 15 cents, or 0.2%.

Both contracts experienced a 2% upswing on Monday following revelations from three OPEC+ insiders who disclosed to Reuters that the producer consortium, comprising the Organization of the Petroleum Exporting Countries (OPEC) and its associates, is contemplating additional reductions in oil production when they convene on Nov. 26.

"With lingering concerns on the demand front, investors have opted for a wait-and-see approach to confirm the actual decision of OPEC+," noted Tsuyoshi Ueno, a senior economist at NLI Research Institute.

He further emphasized, "In the days ahead, the market's attention will be keenly focused on economic indicators from the United States and China, as well as U.S. crude oil inventory levels, to gauge the global demand trajectory." Ueno also pointed out that investors would factor in a weakening U.S. dollar, which could lend support to oil prices.

Over the past couple of months, the oil market has witnessed a nearly 20% decline since late September. This decline has been influenced by robust crude production in the United States, the world's leading producer, coupled with concerns about demand growth, particularly from China, the world's top oil importer.

Traders are also keeping a watchful eye on any indications of demand erosion, potentially due to a U.S. economic slowdown in 2024, as well as taking into account the recent warning of potential deflation issued by Walmart (WMT.N), the largest U.S. retailer.

A preliminary Reuters poll indicated that U.S. crude and gasoline stockpiles probably increased last week, while distillates inventories were expected to decline. The American Petroleum Institute is slated to release its weekly report later on Tuesday, with the Energy Information Administration's report scheduled for Wednesday.

On the supply side of the equation, there is a growing consensus among eight analysts that OPEC+ is likely to extend or even deepen the cuts in oil production into the next year. Goldman Sachs, among these analysts, asserted that based on its statistical model of past OPEC decisions, the possibility of deeper cuts should not be dismissed, given the decline in speculative positioning, shifts in timespreads, and higher-than-anticipated inventories.

Source : Reuters (Reporting by Yuka Obayashi)