Oil prices drop about 1% on demand concerns; Brent reaches $99.60/bbl

Oil prices fell about 1% in early trading on Wednesday, reversing gains from the previous session ahead of an OPEC+ producers’ meeting on fears of slowing global growth hitting fuel demand and a firmer dollar.

Brent crude LCOc1 futures fell 94 cents, or 0.9%, to $99.60 a barrel at 0020 GMT, reversing the previous session’s gain.

West Texas Intermediate (WTI) crude futures CLc1 fell 68 cents, or 0.7%, to $93.74 a barrel, after climbing 53 cents on Tuesday.

The Organization of the Petroleum Exporting Countries and its allies, including Russia, known as OPEC+, meet on Wednesday. OPEC+ sources told Reuters last week that the group would likely keep output unchanged in September, or increase it slightly.

Analysts expect no change due to a weak demand outlook as recession fears grow, and said major producer Saudi Arabia may be reluctant to increase production at the expense of its partner in OPEC+, Russia, hit by sanctions due to the Ukrainian conflict.

Ahead of the meeting, OPEC+ cut its forecast of an oil market surplus this year from 200,000 barrels per day (bpd) to 800,000 bpd, three delegates told Reuters. Read the full story

“The likelihood of them announcing a production increase remains low amid economic uncertainty and signs of weak demand,” ANZ Research analysts said in a note.

Several factors are weighing on the demand outlook, including growing fears of economic collapse in the United States and Europe, over-indebtedness in emerging market economies and China’s COVID-zero policy dampening activity in the first. Global oil importer, Commonwealth Bank analyst Vivek Dhar said.

“We see increasing downside risks to our oil price forecast of US$100/bbl in the fourth quarter of 2022 as global demand concerns continue to grow,” Dhar said in a note.

A stronger dollar, supported by comments from US Federal Reserve officials hinting at more interest rate hikes to calm inflation, also weighed on oil prices as a firmer greenback makes the more expensive oil for holders of other currencies.

Adding to the bearish demand view, data from the American Petroleum Institute, an industry group, showed U.S. crude inventories rose about 2.2 million barrels for the week ended July 29, as that analysts were anticipating a drop of around 600,000 barrels.

Gasoline inventories fell 200,000 barrels, a smaller decline than analysts had expected, but distillate inventories fell about 350,000 barrels from analysts’ forecast for an increase.

The market will be looking to see if official data from the US Energy Information Administration (EIA) at 14:30 GMT confirms the inventory.