Crude oil prices were trading under pressure on Wednesday after the COP28 climate summit ended with a historic agreement to shift away from fossil fuels and increase commitments to renewable energy sources.
Nymex WTI, the U.S. benchmark crude futures contract, was trading flat at $68.72 a barrel in early trade. This followed a 3.8% loss on Tuesday. The European benchmark Brent crude was also flat at $68.64 a barrel, following losses of 3.7% in the previous trading session. Both benchmarks were trading close to six-month lows.
The United States Oil Fund (NYSE:USO), an exchange-traded fund that tracks the price of light sweet crude, was down 0.2% in pre-market trade after losing 3.8% on Tuesday.
This was the first time that a COP summit mentioned reducing the use of fossil fuels in its concluding text. However, oil-producing nations are believed to have watered down the language from “phase out” to “transition away.”
“Governments have agreed, after 28 attempts, that we must reduce fossil fuel use. At a COP run by petrostates and flooded by thousands of oil and gas lobbyists, that simple acknowledgment is a hard-won victory,” said Mike Davis, CEO at human rights group Global Witness.
He added: “We should be realistic about what the failure to agree a phase-out means: fossil fuels forever.”
The oil majors don’t appear to be overly concerned that oil demand will be significantly lower in the coming years.
Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) have recently doubled down on their commitments to future oil and gas production. Both super majors announced multi-billion dollar mergers: Chevron in a $53 billion deal for Hess and Exxon’s $60 billion acquisition of Pioneer Natural Resources.
“It seems that larger market forces are pushing oil, gas, and coal in the direction of the dodo, but it's just as clear that there is still money to be made in their extraction. And until that changes, there will always be someone willing to drill,” said Haley Zaremba at Oilprice.com.
Wednesday’s muted price action followed sharp losses in the previous session.
Reports of higher crude oil exports from OPEC+ member Russia drove losses. An upward revision by the Energy Information Administration (EIA) to its fourth-quarter forecasts for U.S. crude production also drove losses.
An unexpectedly large drawdown in U.S. crude stockpiles didn’t tempt the bulls back into the market. Data from the American Petroleum Institute (API) showed a larger-than-expected drawdown. Refineries continue to raise output for the holiday season.
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