SINGAPORE - Oil headed for the biggest annual drop since 2020 as war and Opec+ production cuts failed to lift prices, with traders concerned that global crude supplies may still eclipse demand in the quarters to come.
Brent crude held above US$77 a barrel, on course for weekly, monthly and quarterly losses, while West Texas Intermediate traded near US$72 a barrel. The global benchmark has declined by about 10 per cent in 2023, while the US marker has retreated by about the same amount. A broader Bloomberg gauge of commodities has dropped by a similar margin over the past 12 months.
Oil ended lower on Dec 28 after official US data showed that while nationwide crude stockpiles shrank last week, holdings at the key Cushing, Oklahoma, storage hub expanded for the 11th week to hit the highest since August. US crude production has been running at a record clip.
Crude is capping a tumultuous year, with prices aided by the outbreak of the Israel-Hamas war, as well as speculation that the Federal Reserve is done with hiking interest rates as inflation wanes. Still, despite repeated cuts to supplies from the Organisation of Petroleum Exporting Countries and its allies, or Opec+, rising production from nations outside the cartel, coupled with concerns about slowing demand growth, have combined to drive crude futures lower.
In December, traders have contended with spiking tensions in the Red Sea after vessel attacks by Houthi rebels in Yemen. Half of the world’s container-ship fleet that regularly transits the waterway are now avoiding the route, and crude tankers have also been diverted, lengthening voyages.
“Prolonged conflict in Gaza is keeping geopolitical tensions high,” said Mr Yeap Jun Rong, market strategist at IG Asia. Still, a broader so-called Santa rally in equities and “the US dollar struggling to gain any traction lately is helping to provide some supportive catalysts for oil into the year end”.
In their latest round of supply cuts, Opec+ members, including Russia, the United Arab Emirates, Kuwait and Iraq, have pledged extra reductions that’ll take effect from Jan 1. In addition, Saudi Arabia will continue with a one million barrel-a-day cut through the first quarter of 2024, which could then be extended. BLOOMBERG
