New York CNN —
Ongoing conflict in Europe and the Middle East, extended production cuts by OPEC+, led by Saudi Arabia and Russia, and an increase in demand for heat this winter all threaten to push up prices of oil and gas.
But the cost of crude oil has been largely declining since the middle of October.
Oil prices sank to their lowest levels since July last week (though they ticked higher on Monday) and are sitting on the verge of a bear market, down nearly 20% from September highs. The average for a gallon of gas in the United States, meanwhile, dropped to $3.37, according to AAA. That’s down from $3.78 a year ago and $3.63 a month ago.
This “steady, if slow” decline in gas prices, said an AAA spokesperson, may soon gain speed if oil prices continue their descent.
What’s happening: Traders don’t expect the current Middle Eastern hostilities to affect energy supplies. They’re more concerned with economic weakness in China and an increase in oil production in the United States.
But “from an economic perspective neither the US nor Iran nor any of the regional oil producers have responded to the conflict in a way that would impact global oil supplies and initial fears that the conflict would boost global energy prices have not been validated so far,” David Kelly, chief global strategist at JPMorgan Asset Management, said Monday in a note.
“In fact, due to moderating crude oil prices and falling refining spreads, we expect energy prices to register significant declines in the October CPI due out this Tuesday and in the November CPI, due out on December 12th – the first day of the final FOMC meeting of 2023,” he added, referring to Federal Reserve policy meetings.
The United States, meanwhile, is extracting oil at record levels, increasing supply and bringing down prices. In the first week of November, US crude oil production reached a new record of 13.2 million barrels per day.
The influence of the United States on global oil markets has grown significantly, as has China’s influence on demand.
But China’s weakening economy is causing concern that the market there will soon slow.
“It’s the demand side which is the focus, with concerns of economic weakness in China and elsewhere capping prices,” David Morrison, senior market analyst at financial services provider Trade Nation, said last week in a note.
There was a 6.4% decrease in Chinese exports in October. China’s National Bureau of Statistics reported last Thursday that consumer prices declined 0.2% in October. Chinese refiners, meanwhile, have asked for less crude supply from Saudi Arabia this December.
Yes, but: Oil prices were up by about 1% on Monday after OPEC’s monthly market report said that the fundamentals remained strong and that it was speculators bringing prices down.
“The OPEC monthly oil market report appeared to push back against demand concerns, referencing overblown negative sentiment around Chinese demand while raising demand growth forecasts for this year and leaving them unchanged for next,” Craig Erlam, senior market analyst at OANDA, said in a note.
Brent crude rose for 1.34% to $82.52 a barrel on Monday. West Texas Intermediate was up 1.41% to $78.26 a barrel. Prices were steady early Tuesday after the International Energy Agency raised its forecasts for oil demand growth this year and next, despite expectations of an economic slowdown.
But the IEA also indicated that supply was likewise “exceeding expectations” and that the global market could tip into surplus in the first quarter of 2024 from a deficit in the final quarter of this year.
Home Depot is still suffering from the housing market slowdown
Home Depot reported slower earnings on weaker sales Tuesday, although it still was able to beat Wall Street forecasts.
Consumers aren’t spending on home improvement projects the way they were during the pandemic. But the company said it is still seeing some strength in smaller improvement jobs, which represent a key part of its business, reports my colleague Chris Isidore.
“We saw continued customer engagement with smaller projects, and experienced pressure in certain big-ticket, discretionary categories,” said CEO Ted Decker.
The company earned $3.8 billion, or $3.81 a share, in the third quarter that ended October 29, down 12% from $4.3 billion a year earlier. Analysts surveyed by Refinitiv had forecast earnings per share of $3.76. Revenue slipped 3% to $37.7 billion, which was slightly better than the forecast of $37.6 billion.
Sales at stores open at least a year fell 3.1% as a slowing in the housing market continued to be a headwind for the company.