Oil Enters Bear Market As Crude Prices Slump To Five-Month Low

Oil prices fell to five-month lows on Wednesday following four straight days of declines as traders remained wary that OPEC+ production cuts would have sufficient impact to offset any loss in demand from a global economic slowdown.

Brent crude fell 0.8% in early trading on Wednesday to $76.55 a barrel, its lowest mark since July 10 when prices were rallying. Brent peaked at nearly $98 in September and has since fallen 21.9% — a fall of more than 20% from its most recent peak puts Brent into bear market territory.

Nymex West Texas Intermediate was on a similar trajectory, down 0.8% to $71.74 on Wednesday — its lowest since July 7 — and down 24.5% since its $95 peak on Sept. 28.

The United States Oil Fund USO, the most liquid exchange traded fund that tracks oil prices, was down 1.3% to $67.58 on Wednesday, putting it 18.9% lower since its most recent peak of $83.29 on September 27.

Also Read: OPEC+ Approaches Preliminary Agreement For Deeper Oil Production Cuts In 2024

OPEC+ Quota Cuts Vs. Oversupply

After some volatility in the past two weeks ahead of last week’s OPEC+ meeting, oil prices have been tracking lower. Although the oil cartel and its allies decided on additional cuts in output, oil traders are in some doubt the curbs will make much difference to market supply.

“OPEC+ has been unable to agree on group-wide cuts,” said Warren Patterson, head of commodities strategy at ING.

“Instead, we are seeing voluntary cuts from a handful of members. Clearly, given the scale of cuts we are already seeing from the group, it is becoming increasingly more difficult for some members to stomach further cuts.”

Ahead of last week’s meeting, the cartel was settling a dispute with African members Angola and Nigeria — both of which were unhappy about their quota levels.

A big mover of the needle on oil prices recently have been data showing growth in U.S. oil stockpiles. Weekly inventory data gathered by the Energy Information Administration showed that in the week of Nov. 24, oil stocks grew by 1.61 million barrels, beating expectations, and following a massive build of 8.7 million barrels in the previous week.

Slowing Economic Growth Clouds Demand Outlook

On the demand side, much uncertainty remains over the state of the global economy. In the U.S. and Europe there are already signs of slowing economic growth, but China is looking to rebuild its economy to help shift the focus from its ailing property sector.

“China, which expected to be behind the bulk of demand growth next year. Over 60% of oil demand growth is expected to come from the country next year,” said Patterson. “Meanwhile, Europe and the Americas are expected to see a small decline in demand next year amid weaker economic growth.”

Now Read: US Manufacturing Suffers 13-Month Contraction Streak In November

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