Oil News: Crude Futures Plunge as Saudi Arabia Plans Production Increase

Light Crude Oil Futures Fall Amid Saudi Output Speculation

Light crude oil futures are trading significantly lower on Thursday, though prices are up from an intraday low of $67.16. The decline in oil prices began earlier this week after touching the 50-day moving average of $72.11, prompting selling pressure. Over the next two sessions, prices dropped into the short-term retracement zone between $68.22 and $67.23. The market’s reaction to this level suggests traders might attempt to form a new higher bottom at $67.16, contrasting with the September 10 low of $64.04.

At 10:58 GMT, Light Crude Oil futures are trading $68.31, down $1.38 or -1.98%.

Saudi Arabia’s Output Plans Pressure Oil Prices

Crude oil prices fell further after news surfaced that Saudi Arabia, the world’s largest crude exporter, may raise production, abandoning its unofficial target of $100 per barrel. Reports indicate that the Kingdom is preparing to increase output, citing insider sources from the Financial Times. OPEC+—led by Saudi Arabia and Russia—has been reducing production to stabilize prices, but the effectiveness of this strategy is in question.

Despite these production cuts, oil prices have fallen by nearly 6% year-to-date, weighed down by rising supply from other key producers, particularly the United States, and weaker demand growth in China.

Analysts point to potential additional supply from Libya as another contributing factor to the market’s weakness. Libya’s crude exports have sharply declined to 400,000 barrels per day in September, down from over 1 million bpd in August due to internal conflicts. However, a recent agreement among Libyan factions on appointing a new central bank governor could lead to an increase in oil revenue and exports.

Chinese Stimulus Offers Some Support

China, the world’s largest importer of crude oil, continues to see lackluster demand growth, contributing to the global supply glut. Nonetheless, a new Chinese stimulus package has somewhat limited losses in the oil market. On Thursday, Chinese officials pledged more fiscal spending to meet this year’s 5% growth target, raising expectations for further economic measures that could boost oil demand.

US Crude Oil Stocks at 2-1/2-Year Low

On the supply front, the Energy Information Administration (EIA) reported a more significant-than-expected drawdown in U.S. crude oil inventories. Crude stocks fell by 4.5 million barrels to 413 million barrels last week, the lowest level since April 2022. Analysts had predicted a smaller draw of 1.4 million barrels. Gasoline and distillate inventories also dropped more than anticipated, reflecting continued supply constraints. However, stocks at the Cushing, Oklahoma hub saw a modest rise for the first time since August.

Refinery utilization rates dipped to 90.9%, and exports declined to 3.9 million barrels per day, offsetting the increase in net imports. Despite these tightening inventories, there is still market sentiment that oversupply risks could re-emerge next year.

Market Forecast: Bearish Outlook

Given the combination of rising supply prospects from Saudi Arabia and Libya, coupled with weak demand growth in China, the outlook for oil prices remains bearish in the short term. Although U.S. crude inventories are shrinking, the potential for increased global supply and continued economic challenges in key markets like China weigh heavily on prices. Traders should expect continued downward pressure on crude oil futures unless significant shifts in supply or demand materialize.