Oil prices have plummeted more than 5% on Thursday to their lowest levels in four months, as investors worried about global oil demand following weak data from the U.S. and Asia. It reflects growing concerns about a global economic slowdown and weakening demand for crude oil. The benchmark Brent crude futures contract dipped below $80 a barrel for the first time since July, while US West Texas Intermediate (WTI) crude futures fell below $76 a barrel. Both Brent and WTI earlier traded at their lowest since July 7, at $76.60 and $72.16, respectively.
“The mood is negative, the charts are negative,” said Phil Flynn, an analyst at Price Futures Group. “It’s going to take something to change that mood, and until then people will ride it down until they realize it’s overdone.” The number of Americans filing new claims for unemployment benefits increased to a three-month high last week, suggesting that labour market conditions continued to ease. The report came after other data that showed U.S. retail sales fell for the first time in seven months in October as motor vehicle purchases and spending on hobbies dropped. This pointed to slowing demand at the start of the fourth quarter that further strengthened expectations the Federal Reserve is done hiking interest rates.
OPEC and the International Energy Agency (IEA) have both predicted supply tightness in the fourth quarter, but U.S. data on Wednesday showed inventories were abundant. OPEC’s current production cuts, aimed at restricting supply and keeping oil prices in check, are scheduled to continue through 2024. Additionally, Saudi Arabia has put unilateral cuts in place of one million barrels per day through year-end. The move will hold Saudi Arabia’s crude output at about 9 million bpd, the lowest level in three years. Russia also has supply curbs in effect during the same period.
The impact of lower oil prices is likely to be felt across the energy sector, potentially leading to reduced investment in oil exploration and production. Consumers may also experience some relief at the pump, as lower oil prices could translate into lower gasoline prices.