Oil Slips Over 1% on Bets that Crude Supply Growth Will Exceed Demand

The sun is seen behind a crude oil pump jack in the Permian Basin in Loving County, Texas, US, November 22, 2019. REUTERS/Angus Mordant/File Photo
The sun is seen behind a crude oil pump jack in the Permian Basin in Loving County, Texas, US, November 22, 2019. REUTERS/Angus Mordant/File Photo
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Oil Slips Over 1% on Bets that Crude Supply Growth Will Exceed Demand

The sun is seen behind a crude oil pump jack in the Permian Basin in Loving County, Texas, US, November 22, 2019. REUTERS/Angus Mordant/File Photo
The sun is seen behind a crude oil pump jack in the Permian Basin in Loving County, Texas, US, November 22, 2019. REUTERS/Angus Mordant/File Photo

Oil prices fell for a third day straight on Wednesday on growing expectations that supply growth will outpace demand growth next year, even though the Omicron coronavirus variant is not seen curbing mobility as sharply as earlier COVID-19 variants.

US West Texas Intermediate (WTI) crude futures fell $1.05, or 1.5%, to $69.68 a barrel by 0734 GMT, after losing 56 cents in the previous session.

Brent crude futures fell 91 cents, or 1.2%, to $72.79 a barrel, after losing 69 cents on Tuesday.

Brent's prompt monthly spread was unchanged at 7 cents after flipping into contango briefly on Tuesday.

The International Energy Agency (IEA) on Tuesday said a surge in COVID-19 cases with the emergence of the Omicron variant will dent global demand for oil at the same time that crude output is set to increase, especially in the United States, with supply set to exceed demand through at least the end of next year.

In contrast, the Organization of the Petroleum Exporting (OPEC) on Monday raised its world oil demand forecast for the first quarter of 2022.

"The IEA's bearish view on the market was in stark contrast to OPEC's more positive view when it released its monthly outlook earlier this week. The divide suggests volatility is likely to remain high in the short term," ANZ commodity analysts said in a note.

Energy consultancy FGE said it has a more optimistic outlook than the IEA as the consultancy expects a smaller surplus of 400,000 barrels per day, based on a comparatively lower demand risk from Omicron, against IEA's forecast of 1.7 million bpd in the first quarter.

Also weighing on the market is a firming US dollar, which makes commodities priced in the greenback more expensive for other countries, Reuters reported. Markets are awaiting the outcome of a key US Federal Reserve policy meeting on Wednesday for signs of when the central bank may raise interest rates.

In another bearish indicator, industry data showed that US crude inventories last week did not decline as much as expected. American Petroleum Institute data showed US crude stocks fell by 815,000 barrels in the week ended Dec. 10, according to market sources, compared with a 2.1 million barrel drop that 10 analysts polled by Reuters had expected.

However, distillate stocks fell by 1 million barrels, compared with analysts' forecasts for an increase of 700,000 barrels, and gasoline stocks rose by 426,000 barrels, which was a smaller build than expected. Weekly data from the US Energy Information Administration is due later on Wednesday.



US Service Sector Sags in June as Orders Sink

The ISM reported on Monday that manufacturing activity had deteriorated further in June.- Reuters
The ISM reported on Monday that manufacturing activity had deteriorated further in June.- Reuters
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US Service Sector Sags in June as Orders Sink

The ISM reported on Monday that manufacturing activity had deteriorated further in June.- Reuters
The ISM reported on Monday that manufacturing activity had deteriorated further in June.- Reuters

A measure of US services sector activity slumped to a four-year low in June amid a sharp drop in orders, potentially hinting at a loss of momentum in the economy at the end of the second quarter.

The Institute for Supply Management said its nonmanufacturing purchasing managers (PMI) index dropped to 48.8 last month, the lowest level since May 2020, from 53.8 in May. It was the second time this year that the PMI had dropped below 50, which indicates contraction in the services sector.

Economists polled by Reuters had forecast the services PMI slipping to 52.5. The PMI fell below the 49 level that the ISM says over time generally indicates an expansion of the overall economy. The survey's business activity measure dropped to 49.6, the first contraction since May 2020, from 61.2 in May.

The ISM reported on Monday that manufacturing activity had deteriorated further in June.

The surveys, however, likely understate the economy's health, with so-called hard data like consumer spending suggesting a moderate pace of growth last quarter. The economy is adjusting to higher interest rates, which are slowing demand.

Growth estimates for the second quarter are around a 2% annualized rate. The economy grew at a 1.4% pace in the January-March quarter.

The survey's new orders measure dropped to 47.3, the lowest since December 2022, from 54.1 in May. Services employment continued to decline. That would suggest softer job growth in the months ahead, though the sentiment surveys have not been reliable predictors of payroll gains.

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The government's closely watched employment report on Friday is likely to show nonfarm payrolls increased by 190,000 jobs in June after rising 272,000 in May, according to a Reuters survey of economists. The unemployment rate is forecast unchanged at 4%.

Services inflation slowed a bit last month. The ISM's prices paid measure for services inputs slipped to 56.3 from 58.1 in May. That suggests the disinflation trend was back on track after price pressures flared up in the first quarter.