Oil futures fell early Tuesday following a pullback from their 2023 highs. Investors are becoming increasingly concerned about the global economic outlook after the Federal Reserve signaled its intention to maintain elevated interest rates for an extended period.
Price Action
- West Texas Intermediate crude for November delivery (CL00, -0.75% CL.1, -0.75% CLX23, -0.75%) dropped 85 cents, or 1%, to $88.83 a barrel on the New York Mercantile Exchange.
- November Brent crude (BRNX23, -0.72%), the global benchmark, declined 74 cents, or 0.8%, to $92.55 a barrel on ICE Futures Europe.
Market Drivers
Oil prices reached their highest levels in 2023 earlier this month, driven by Saudi Arabia’s decision to continue a production cut of 1 million barrels per day until the end of the year and Russia’s move to curb exports by 300,000 barrels per day.
The optimism for a potential economic soft landing, along with expectations of a significant supply deficit by the end of the year, contributed to the gains. However, uncertainty surrounding the demand outlook has increased after the Federal Reserve indicated a longer period of elevated interest rates than previously anticipated.
Meanwhile, higher oil prices are attracting additional supply, according to Robert Yawger, executive director for energy futures at Mizuho.
The Energy Information Administration estimates that domestic production has increased by 700,000 barrels per day since the end of May, reaching 12.9 million barrels per day. However, this is still shy of the record high of 13.1 million barrels per day in March 2020. Furthermore, it is expected that 400,000 barrels per day of Iraqi Kurd barrels sent through the Turkish export facility at Ceyhan will soon return to the market.
Robert Yawger also mentioned the possibility of Iranian barrels reentering the open market after diplomatic progress, as well as the arrival of new barrels from Suriname and Guyana, which continue to contribute to the market supply.