Oil futures: Crude near three-month lows as economic headwinds weigh

Quantum Commodity Intelligence – Crude oil futures Tuesday were in retreat as concerns over economic headwinds derailed the early-week rebound, as markets gave greater weight to dismal demand instead of fears of an escalation in the Israel-Hamas war.

Front-month Jan23 ICE Brent futures were trading at two-and-a-half month lows of $82.07/b (1711 GMT), compared to Monday's settle of $85.18/b and having traded comfortably above $86/b at one point during the previous session.

At the same time, Dec23 NYMEX WTI was trading $77.82/b versus Monday's settle of $80.82/b, as benchmark prices struggled on concerns of higher interest rates lasting well into next year and weak economic growth.

Prices had strengthened after Saudi Arabia and Russia reiterated current production levels would remain in place until at least the end of the year.

The confirmation itself was already priced in, but it raised the possibility that the 23-member OPEC+ group would prepare for an extension to cuts when it meets on 26 November in Vienna to discuss output policy for 2024.

However, fears over weak Chinese domestic demand and low export quotas for products outweighed any prospect of a supply cut.

Concerns over a demand slowdown, with interest rates set to remain high, continue to weigh on markets, while global inventories are set to show a build in the first half of 2024.

Oil prices also came under pressure after China's customs agency reported a 6.4% year-on-year drop in exports, as measured in US dollars, missing expectations for a 3.3% drop expected by a Reuters poll.

The Middle East conflict remains largely contained in Gaza while US Secretary of State Antony Blinken continues shuttle diplomacy in a bid to calm regional tensions and broker a ceasefire, at least to allow for humanitarian aid.

"Our baseline scenario for the Israel-Hamas war sees fighting remain largely contained to the Gaza Strip, in which there is no producing oil infrastructure," said BMI Fitch Solutions in a client report.

"Nevertheless, we could see oil supply disrupted should US President Biden bow to mounting bipartisan pressure to choke off illicit exports of Iranian crude, in response to Tehran's alleged involvement in the Hamas attack on 7 October 7," added the BMI client note.