Oil prices drop was about 2% on Thursday, October 5, extending the previous session’s nearly 6 per cent losses. The oil prices were down, as an uncertain demand outlook overshadowed an OPEC decision to maintain oil output cuts, keeping supply tight.
Oil prices declined further on Thursday, following the prior day’s roughly 6% plunge for both Brent and West Texas Intermediate crude. Oil prices today settled more than $5 lower on Wednesday. This is the biggest daily oil price drop in over a year even after a meeting of a ministerial panel of the Organization of the Petroleum Exporting Countries and allies (OPEC+).
Oil price futures
Global benchmark Brent crude futures have declined about $10 a barrel in less than 10 days after edging close to $100 in late September. The combined percentage oil prices drop over the last two days was the steepest since May for both crude benchmarks. Brent futures fell $1.62, or 1.9 per cent, to $84.19. US West Texas Intermediate crude futures were $1.55 cents, or 1.8 per cent, lower at $82.73.
The retreat comes after prices had climbed 30% over the last couple months.
Why oil prices drop?
The sharp oil prices drop, Wednesday followed weekly data from the Energy Department that indicated lower demand for gasoline. And JPMorgan strategists cautioned that oil demand could go down from the summer’s high prices and a slowdown in seasonal travel.
“Demand destruction has begun (again),” JPMorgan’s Natasha Kaneva said on oil prices drop, on Wednesday. She has a year-end price target of $86 a barrel for oil and noted that “global oil stock draws have ended.”
Kaneva cited satellite observations from Platts that suggest global commercial crude inventories declined 8 million barrels during the first three weeks of September, while the oil product stocks surged 38 million barrels, resulting in a net increase in total oil liquids of 30 million barrels.
Russia ready for supply
Reports also indicated that Russia was considering lifting its diesel export ban. At the same time however, Russia and Saudi Arabia will maintain their production cuts that had allowed oil prices to rally over recent weeks.
Meanwhile, the US dollar strengthened this week to a 10-month high, coinciding with the oil prices drop over the last two days.
When the dollar is strong against rival currencies and oil prices are high at the same time, it exacerbates energy costs for other countries around the world, Saxo Bank strategists highlighted in a Monday note.
No change to oil output policy
OPEC made no changes to the group’s oil output policy, and Saudi Arabia said it would maintain a voluntary cut of 1 million barrels per day (bpd) until the end of 2023, while Russia would keep a 300,000 bpd voluntary export curb until the end of December.
