Oil drops to 5-month low on concerns of oversupply, weak demand

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Oil prices continued their downward trend Wednesday, falling to a five-month low despite the release of government data showing crude total inventories in the US dropped by 4.6 million barrels last week.

The Energy Information Administration data also showed gasoline stockpiles rising by more than 5 million barrels last week versus estimates of a build of 1.3 million. Even though a rise in fuel inventory is expected at this time of year, the outsized level points to weakness in demand.

West Texas Intermediate (CL=F) fell about 4% in midday trading Wednesday, dropping below $70 per barrel. Brent (BZ=F) crude, the international benchmark price was down about 3.6%, below the $75 per barrel level.

Oil prices had opened lower on Wednesday prior to the release of the EIA data on concerns of oversupply and weaker demand. Moody’s gave China’s credit rating a downgrade warning on Tuesday as concerns about the country’s economic growth mount.

“Economic numbers from China are showing a further slowdown as Asian refinery run rates continue to drop with Saudi cutting cash crude prices for next month to China,” said Dennis Kissler, senior vice president at BOK Financial’s trading division. He also noted that seasonally, oil prices tend to decline in late December.

Meanwhile, ADP employment data released Wednesday showed an increase of 103,000 jobs in the US last month, compared to expectations of 130,000. The prior month’s add-ons was revised down to 106,000 jobs, versus 113,000 previously reported.

A weaker US job market points to lower demand amid an economic slowdown.

Oil has been on a downward trend over the last couple of months, despite output reductions from OPEC+, and deepened reductions announced last week.

Last Thursday OPEC+ agreed to additional output curbs of 1 million barrels per day in a move aimed at sending prices higher. The deeper reductions come alongside an extension of Saudi Arabia’s unilateral reduction of 1 million barrels per day.

An oil pumper stands in a field along Interstate 25 on Thursday, Nov. 30, 2023, near Erie, Colo. (AP Photo/David Zalubowski)An oil pumper stands in a field along Interstate 25 on Thursday, Nov. 30, 2023, near Erie, Colo. (AP Photo/David Zalubowski)

An oil pumper stands in a field along Interstate 25 on Thursday, Nov. 30, 2023, near Erie, Colo. (AP Photo/David Zalubowski) (ASSOCIATED PRESS)

A lack of mention of the additional cuts in the official press release following OPEC+’s meeting led traders to believe those reductions were voluntary in nature as each country announced quotas individually.

Since the oil producer alliance’s decision, both WTI and Brent have both declined by about $5 each, or roughly 6%.

Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre.

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