International oil prices plunged nearly 5% amid concerns that oil demand will decline due to an economic slowdown.
On the 16th (local time) at the New York Mercantile Exchange, December delivery West Texas Intermediate (WTI) crude oil futures closed at $72.90 per barrel, down $3.76 (4.9%) from the previous session. This is the lowest level in about four months since early July. The daily fluctuation also marked the largest drop since October 4. At the London ICE Futures Exchange, January delivery Brent crude futures fell $3.58 (4.41%) to around $77.60 per barrel.
The decline in oil prices on this day is analyzed as a result of confirmed concerns over rising crude inventories and decreasing demand in the two major economies (G2) leading the global economy, the United States and China. The U.S. Energy Information Administration (EIA) reported in its weekly report released that commercial crude oil inventories increased by 3.6 million barrels compared to the previous week. Meanwhile, U.S. industrial production for October, released the same day, decreased by 0.6% from the previous month, falling short of both Wall Street expectations and the previous month's figure. The decline in industrial production was due to the strike by the United Auto Workers (UAW), but the market immediately intensified concerns about an economic slowdown and reduced oil demand.
Phil Flynn, a researcher at Price Futures Group, told CNBC, "The slowdown in manufacturing production combined with increased oil supply is influencing the narrative of weakening oil demand," adding, "The downward trend is dominating the market, making it difficult to find support levels for oil prices."
In China, news of a sharp drop in crude oil refining also fueled the decline in international oil prices. According to the National Bureau of Statistics of China, crude oil refining in October was 15.1 million barrels per day, down 2.8% from the previous month's record high. This suggests a slowdown in demand from the world's second-largest economy. Jim Burkhard, president of S&P Global Commodity Insights, diagnosed, "The impact of China's reopening after the pandemic on oil prices is disappearing."
On the other hand, oil-producing countries including the Organization of the Petroleum Exporting Countries (OPEC) believe that the recent decline due to concerns over economic slowdown is excessive. Since the beginning of this month, WTI has fallen more than 10%. In its recent monthly report, OPEC revised its oil demand forecast for this year upward from 2.4 million barrels per day to 2.5 million barrels per day. The report included analysis that China's crude oil imports remain at a good level, the U.S. economy continues strong growth, and the recent decline in oil prices is due to financial market speculators. Researcher Flynn evaluated, "How OPEC responds at the meeting on the 26th will be a key factor."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
