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Oil prices claw back after settling at 5-month lows

(Montel) Oil prices edged higher early on Wednesday after settling at five-month lows in the previous session amid concerns about demand growth in China and a buoyant US dollar, while the market continued to digest a recent pledge by Opec+ to extend output cuts.

The front-month contract for Brent crude North Sea oil was last seen up USD 0.17 at USD 77.37/bbl, while the WTI equivalent was USD 0.03 higher at USD 72.35/bbl. On Tuesday, both contracts settled at their lowest since July.

“Crude oil prices fell for the fourth straight trading day on a firmed USD and [a] deteriorated Chinese economic outlook,” Tina Teng, analyst at CMC Markets, said in a note.

The US dollar index, a measure of the greenback’s value against a basket of other key currencies, has increased from around 103 in early December to almost 104 now. Generally, a stronger dollar deters investors using other currencies from buying dollar-denominated commodities like crude oil.

Meanwhile, ratings agency Moody’s cut its outlook on China’s sovereign credit rating to negative on Tuesday, citing growing risks of flagging midterm economic growth and “the ongoing downsizing of the property sector”.

The announcement raised concerns about fuel demand from the world’s largest importer of crude oil, said analysts at Phillip Nova.

Meanwhile, analysts at ANZ bank said the recent slump in oil prices was a sign that the market "remains unconvinced that recent supply cuts by [Opec and its allies] will be fully implemented".

Last Thursday, several producers of the Opec+ alliance announced additional voluntary output cuts totalling 2.2m bbl/day through the first quarter of 2024 to help stabilise and balance the oil market.

However, analysts said the new additional voluntary cuts amounted to only around 0.9m bbl/day because Saudi Arabia and Russia had previously said they would extend their voluntary cuts of crude oil output – totalling 1.3m bbl/day – into the new year.  

"The lack of any details on new quotas also leaves open the possibility of producers not adhering to their voluntary reductions," said ANZ bank.

The ANZ analysts added: "Saudi Arabia's efforts to talk up the new supply agreement also fell on deaf ears."

Prince Abdulaziz bin Salman, Saudi Arabia's energy minister, reportedly said that the Opec+ oil production cuts could continue after the first quarter if necessary, and pledged that the cuts will be fully implemented. Russian officials also stated that the cartel’s cuts could be extended or deepened if the market situation makes it necessary.

Notwithstanding the Opec+ cuts, global crude supply could increase from a record 101.8m bbl/day this year to more than 103m bbl/day in 2024, thanks largely to record output from the US and other non-Opec nations, according to the International Energy Agency.

On the US crude inventory front, the American Petroleum Institute said US oil stocks rose by 0.59m barrels in the week ending 1 December, according to media reports, compared with analyst expectations of a decrease of around 2m barrels.

The official US government inventory report will be released later today.