Crude oil markets are heading toward their most severe annual decline since the pandemic-induced slump of 2020, with fears of oversupply expected to dominate market sentiment and trading activity through the year-end and into the new year, dragging down oil prices.
The U.S. benchmark WTI crude futures are trading below $58 per barrel, poised for a fifth consecutive monthly decline, having fallen nearly 20% year-to-date. Traders are closely monitoring the upcoming OPEC+ meeting, bearish U.S. industry reports, and a range of geopolitical tensions in the short term.
Crude oil prices have plummeted significantly this year due to surging supply from OPEC+ and its competitors, coupled with slowing growth in global demand. Top forecasting bodies, including the International Energy Agency (IEA), predict a substantial supply surplus next year. Even the OPEC Secretariat, typically more optimistic than other agencies, forecasts a slight surplus.
Three OPEC+ representatives indicated that as signs of a global supply glut become increasingly evident, the group is expected to maintain its pause on output increases during a scheduled video conference on January 4th.
The American Petroleum Institute (API) reported that U.S. crude inventories increased by 1.7 million barrels last week. If confirmed by official data released later on Wednesday, this would mark the largest build since mid-November. The API also reported increases in gasoline and distillate stockpiles.
On the geopolitical front, the United Arab Emirates announced it will withdraw troops from Yemen. This follows tensions with its Gulf ally Saudi Arabia regarding military operations in Yemen. Both Saudi Arabia and the UAE are key members of OPEC.
Trading activity was subdued on Wednesday, with many traders already on holiday. Most financial markets, including crude oil, will be closed on Thursday for the New Year's holiday.
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