Oil prices extended losses in Asian trading on Wednesday after falling more than 3% in the previous session to six-month lows on oversupply and demand concerns.
February Brent crude futures were down 33 cents, or 0.45%, at $72.91 a barrel as of 06:21 GMT. West Texas Intermediate (WTI) crude futures for January fell 29 cents, or 0.42%, to $68.32 a barrel.
Stronger-than-expected US inflation data for November supports the view that the Fed is unlikely to cut interest rates early next year, which would weigh on consumption. Hence, the market stumbled in overnight trading.
According to analysts, the weekly average of Russian crude exports jumped to its highest level since July, raising concerns about oversupply. Thus, doubts have increased regarding the latest production cut agreement made by the Organization of Petroleum Exporting Countries and its allies called OPEC +.
In its latest Short-Term Energy Outlook report, the US Energy Information Administration (EIA) increased its 2023 supply forecast by 300,000 barrels per day compared to its previous report, to 12.93 million barrels per day.
It looks like oil will likely continue to fall throughout the week, continuing its seven consecutive weeks of decline.
The US central bank’s policy meeting, which will be completed late on Wednesday, will determine the direction of the markets. The Fed is expected to keep interest rates steady. Investors will focus on Fed officials’ views on the economy and where they see interest rates in the coming quarters. If the Fed takes a more hawkish stance than expected, it may cause crude oil prices to drop further.
Some argue that the Fed discussions are unlikely to encounter any surprises and that prices may recover with some relief rally after the meeting.
Meanwhile, markets have largely priced in aggressive rate cuts for 2024, in line with expectations. Any disappointment on this front could strengthen the US dollar.
The United Nations on Wednesday adopted a resolution calling for an immediate ceasefire in Gaza, while the United States voted against it. However, Biden warned that Israel was starting to lose international support due to the killing of civilians.
The cost of shipping across the Red Sea is also rising as the Houthis, the Iranian-backed group in Yemen, step up attacks on ships they believe are tied to Israel and industry sources warn there could be disruptions to global shipping in the region.
COP28 talks entered their final hours on Wednesday morning as governments continue to squabble over the future of oil and other fossil fuels. China’s former vice minister Liu Zhenmin said in Dubai on Wednesday morning that some sticking points remained. A draft agreement prepared on Monday was criticized for not calling for a phase-out of fossil fuels.
