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Oil plunges 4 percent to June levels as gasoline glut stokes demand fears

By News Desk
December 07, 2023

HOUSTON: Oil prices fell by 4 percent on Wednesday, and touched their lowest levels since June, as a larger-than-expected rise in U.S. gasoline inventories exacerbated worries about fuel demand.

Brent crude futures fell $2.81, or 3.5 percent, to $74.39 a barrel by 1733 GMT. U.S. WTIcrude futures fell by $2.74 , or 3.8 percent, to $69.58 a barrel.

"There is demand destruction coming in from the fuel side. The market is more demand focused than supply focused right now," Dennis Kissler, senior vice president of trading at BOK Financial.

Pumpjacks photographed in the Montebello Oil Field in California, on February 23, 2022. — AFP
Pumpjacks photographed in the Montebello Oil Field in California, on February 23, 2022. — AFP

Concerns over China's economic health also weighed on prices, a day after rating agency Moody's lowered the outlook on China's A1 rating to negative from stable.

U.S. gasoline stocks rose by 5.4 million barrels last week, the Energy Information Administration said, more than quintuple the 1 million-barrel rise that analysts had expected. Crude inventories fell by 4.6 million barrels, far exceeding the 1.4 million-barrel drop analysts had expected.

Brent fell below $75 a barrel for the first time since early July. U.S. crude dipped below $70 for the first time since July. On Tuesday, both benchmarks settled at their lowest since July 6, a fourth straight session of losses.

OPEC+, the Organization of the Petroleum Exporting Countries and allies such as Russia agreed late last week on voluntary output cuts of about 2.2 million barrels per day (bpd) for the first quarter of 2024. This week, Saudi and Russian officials said the cuts could be extended or deepened beyond March.

On Wednesday, Russian president Vladimir Putin traveled to the United Arab Emirates and Saudi Arabia to meet with the UAE's President Sheikh Mohammed Bin Zayed Al Nahyan and Saudi Crown Prince Mohammed bin Salman.

The meeting with MbS, as the prince is widely known, comes after a fall in oil prices despite a pledge by OPEC+, which groups the Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia, to further cut output. Oil and OPEC+ were on the agenda.

Last month, OPEC+ delayed a meeting by several days due to disagreements over production levels. The Saudi energy minister said OPEC+ also wanted more assurances from Moscow that it would make good on its pledge to reduce fuel exports.

Relations between Saudi Arabia and Russia in OPEC+ have been uneasy at times. A deal on cutting exports almost broke down in March 2020, but they managed to make up within weeks and OPEC+ agreed to record cuts of almost 10% of global demand.

In the U.S., a drop in exports caused the trade deficit to widen in October, which could drag

economic growth in the fourth quarter. "Clearly traders were already feeling bearish and now oil is back at a five-month low and heading for a fifth day of losses," OANDA analyst Craig Erlam said. The U.S. dollar also touched a two-week high, which pressures demand by making oil more expensive for holders of other currencies.