Oil prices experienced a slight decline on Wednesday as worries regarding demand growth in China, the world’s largest crude importer, collided with indications of supply constraints stemming from output reductions by major producers.
Brent crude futures dropped by 13 cents to $81.91 per barrel by 0045 GMT, while U.S. West Texas Intermediate crude futures saw an 11-cent decrease to $78.04 per barrel.
China’s announcement of an economic growth target of approximately 5% for 2024 on Tuesday, without significant stimulus measures to support the country’s struggling economy, raised apprehensions that demand expansion in the nation could be subdued this year.
The recent ‘risk-off’ sentiment in trading was exemplified by the decline in Treasury yields, exerting pressure on oil prices. Meanwhile, the weaker U.S. dollar provided some support, boosting demand for buyers transacting in alternative currencies.
Despite these factors, oil prices found support from the extension of output cuts by the Organization of the Petroleum Exporting Countries and its allies (OPEC+) until the end of the second quarter, creating supply tightness in Asian markets. Additionally, disruptions in oil tanker movements due to Red Sea attacks by the Houthi militia in Yemen have further constrained oil transit.
Daniel Hynes, ANZ’s senior commodity strategist, noted that while crude oil futures dipped amidst the prevailing risk-off sentiment across markets, signs of tightness in the physical market persisted. He highlighted that the impact of OPEC+ cuts is gradually manifesting in the market.
Saudi Arabia, the largest oil exporter globally, announced slightly elevated prices for April crude sales to Asia, underscoring signs of physical tightness in the market.
In related news, the American Petroleum Institute reported a modest increase of 423,000 barrels in U.S. crude stocks for the week ending March 1, contrasting with analysts’ expectations of a 2.1 million barrel rise in a Reuters poll. Gasoline inventories decreased by 2.8 million barrels, while distillate fuel stocks fell by 1.8 million barrels, as per API data.
The U.S. Energy Information Administration is scheduled to release official data at 10:30 a.m. ET (1530 GMT) on Wednesday. If the EIA confirms a build in crude storage, it would mark the sixth consecutive week of rising oil stocks in the country.