In the latest market volatility, oil prices experienced a sharp decline, dropping nearly 4% to their lowest settlements since June. The grim outlook came as U.S. data revealed a significant surge in gasoline inventories, intensifying anxieties about global fuel demand. Brent crude futures settled down $2.90, or 3.8%, at $74.30 a barrel, while U.S. WTI crude futures fell by $2.94, or 4.1%, to $69.38 a barrel.

Industry experts voiced growing worries about the impact of reduced fuel consumption on the market. Dennis Kissler, senior vice president of trading at BOK Financial, noted, "There is demand destruction coming in from the fuel side." The concerns were further aggravated by China's economic health and its potential effects on future fuel demand, following Moody's decision to downgrade China's A1 rating outlook to negative from stable.

The Energy Information Administration's report unveiled a startling increase in U.S. gasoline stocks, which rose by 5.4 million barrels last week—more than five times the predicted 1 million-barrel rise. Consequently, U.S. gasoline futures experienced a significant downturn, reaching their lowest point in two years. John Kilduff, partner with Again Capital LLC, attributed the lackluster demand during the Thanksgiving holiday weekend as a contributing factor, stating, "Even though it was not the peak gasoline season, demand during the long Thanksgiving holiday weekend was lackluster." Gasoline demand fell short of the 10-year seasonal average by 2.5%.

The strength of the U.S. dollar also played a role in oil price decline, surging to a two-week high. This surge puts pressure on demand, as it makes oil more costly for holders of other currencies.

Counterintuitively, an unexpected drop in U.S. crude inventories failed to bolster prices. Crude inventories fell by 4.6 million barrels, surpassing the estimated 1.4 million-barrel decline predicted by analysts. Despite this positive development, concerns surrounding global fuel demand overshadowed the inventory report.

In an attempt to address the market imbalance, OPEC+—the coalition of the Organization of the Petroleum Exporting Countries and other oil-producing nations such as Russia—recently agreed to voluntary output cuts totaling approximately 2.2 million barrels per day (bpd) for the first quarter of 2024. Officials from Saudi Arabia and Russia indicated that these cuts should prevent an inventory buildup in the first quarter and may even be extended or intensified based on market conditions.

Nevertheless, oil prices have experienced an overall decline of nearly 11% since the settlement on November 29, the day preceding the OPEC+ meeting. As a result, Russian President Vladimir Putin embarked on a diplomatic visit to the United Arab Emirates and Saudi Arabia, where discussions on oil and the future of OPEC+ took center stage.

In a disconcerting sign for the industry, forward prices for U.S. crude reached their steepest premium to prompt barrels. This trend highlights concerns over an abundance of supply and growing fears of sluggish demand in the foreseeable future.

As uncertainties loom over the global oil market, analysts and investors alike will closely monitor economic indicators and geopolitical developments to assess the trajectory of oil prices in the coming months.