Oil prices slide 2% on worries about global oversupply, US demand

By Scott DiSavino

NEW YORK (Reuters) - Oil prices slid on Thursday, settling about 2% lower as concerns over possible softening of U.S. demand and broad oversupply offset threats to output from the conflict in the Middle East and the war in Ukraine. 

Brent crude futures fell $1.12, or 1.7%, to settle at $66.37 a barrel. U.S. West Texas Intermediate (WTI) crude fell $1.30, or 2.0%, to settle at $62.37.

The International Energy Agency said in its monthly report that world oil supply will rise more rapidly than expected this year due to planned output increases by OPEC+, the Organization of the Petroleum Exporting Countries and allies like Russia.

"Oil prices are falling today in response to bearish IEA headlines, which suggest massive oversupply on the oil market next year," said Carsten Fritsch, an analyst at Commerzbank.

On Sunday, OPEC+ agreed to raise production from October. But in another report, however, OPEC kept non-OPEC supply and demand forecasts for the year unchanged, citing steady demand.

The market was torn between a perceived supply shortage due to a rise in tensions in the Middle East and Ukraine and actual oversupply from higher OPEC+ production and swelling stocks, said Tamas Varga, an analyst at PVM Oil Associates.

OPEC leader Saudi Arabia's crude oil exports to China are set to surge, several trade sources told Reuters on Thursday, with state-controlled energy firm Aramco shipping about 1.65 million barrels per day in October, up sharply from 1.43 million bpd allocated in September.

The market is also questioning how long China could continue to absorb barrels and keep Organization for Economic Co-operation and Development (OECD) inventories low, said Giovanni Staunovo, an analyst at UBS, adding that investors were also watching for further sanctions affecting Russian oil.

In Russia, the world's second-biggest producer of crude behind the U.S. in 2024, revenue from crude and oil products sales declined in August to one of the lowest levels seen since the start of the conflict in Ukraine, the IEA said.

U.S. Energy Secretary Chris Wright and European Commissioner for Energy and Housing Dan Jorgensen discussed efforts to restrict Russian energy trade during talks in Brussels, with Jorgensen saying the European Union's planned deadlines were ambitious but there is a need to speed the process.

In India, meanwhile, the largest private port operator, Adani Group has banned entry at its ports of tankers sanctioned by Western countries, three sources said and documents show. The move could hit Russian oil supplies for two Indian refiners.

INTEREST RATES AND INFLATION

U.S. consumer prices in August increased by the most in seven months, fueled by higher housing and food costs. A surge in first-time applications for unemployment aid last week kept feeding expectations that the Federal Reserve will cut interest rates next Wednesday, which could boost economic growth and demand for oil.

The European Central Bank left interest rates unchanged on Thursday, as expected, but offered no clues about its next move. Investors continue to bet the EU economy will need more support next year, yet traders curbed their bets on another ECB rate cut this cycle. Another move is now seen as a coin toss.

(Reporting by Scott DiSavino in New York, Seher Dareen in London and Katya Golubkova in Tokyo; Additional reporting by Ahmad Ghaddar in London; Editing by David Goodman, Louise Heavens, Paul Simao and David Gregorio)