Oil prices fell on Friday as investors assessed signs that demand in China, the world’s largest crude importer, is continuing to underperform amid an uneven economic recovery and expectations of fewer interest rate cuts by the Federal Reserve. Brent crude futures dropped by $0.95, or 1.31%, to $71.62 a barrel by 08:25 GMT. U.S. West Texas Intermediate (WTI) crude futures were down $0.90, or 1.3%, at $67.81. For the week, Brent is set to decline by 3.06%, while WTI is poised for a 3.67% drop. “The weakness in oil prices seems to reflect the cool-off in broader risk sentiment,” said Yeap Jun Rong, a market strategist at IG, in an email, pointing to the decline in equity markets. Concerns about higher supplies from the U.S. and OPEC+, along with doubts regarding China’s economic recovery, are also contributing factors, Yeap added.
Data from the National Bureau of Statistics released on Friday showed that China’s oil refiners processed 4.6% less crude in October compared to a year earlier, marking the seventh consecutive month of year-on-year declines due to some plant closures and reduced operating rates at smaller independent refiners.
This decline in refining rates happened as China’s factory output growth slowed last month, while ongoing demand issues in the property sector showed few signs of improvement, despite an increase in consumer spending, according to government data. Yeap also highlighted comments from U.S. Federal Reserve Chair Jerome Powell on Thursday, indicating that the Fed does not need to rush into lowering interest rates. A slowdown in anticipated interest rate cuts could hinder some economic growth, thereby limiting fuel demand. This scenario also supports a stronger U.S. dollar, which affects buyers purchasing dollar-denominated crude in other currencies.
Oil prices have also decreased this week as major forecasters pointed to continued bearish market fundamentals. The International Energy Agency (IEA) projected that global oil supply will surpass demand in 2025, even if OPEC+ continues to implement cuts. This is due to rising production from the U.S. and other non-OPEC producers, which outpaces sluggish demand.
The Paris-based agency raised its 2024 demand growth forecast by 60,000 barrels per day to 920,000 bpd while leaving its 2025 oil demand growth forecast largely unchanged at 990,000 bpd. This week, OPEC cut its forecast for global oil demand growth for this year and 2025, citing weaknesses in China, India, and other regions. This marks the group’s fourth consecutive downward revision to its 2024 outlook.
According to data from the Energy Information Administration (EIA), U.S. crude inventories rose by 2.1 million barrels last week, significantly exceeding analysts’ expectations of a 750,000-barrel increase. In contrast, gasoline stocks fell by 4.4 million barrels to the lowest level since November 2022, compared to the anticipated 600,000-barrel build. Additionally, distillate stockpiles, which include diesel and heating oil, unexpectedly fell by 1.4 million barrels.