Oil Prices Fall on Strong U.S Dollar, China’s Weak Demand
The prices of crude oil dropped further in the global commodities market on Tuesday as Chinese demand is expected to remain weak, supported by strengthened U.S dollar.
The market concerns that China’s stimulus plan might not sufficiently boost the economy of the world’s top oil importing country, fueling oversupply concerns. Brent fell to $71.78 per barrel while the US benchmark West Texas Intermediate declined to $67.94 per barrel.
China approved a bill to increase the quota for issuing special debt bonds to local governments with debt problems to 6 trillion yuan ($840 billion) for 3 years.
Experts state that the latest stimulus plan announced by the Chinese government does not meet the expectations of investors, while market players question how the new stimulus package will affect oil prices and economic growth.
In its latest report, OPEC revised its forecast for global oil demand for this year downwards by 106,000 barrels per day (bpd) compared to its previous forecast. The decline in demand is expected to be mostly due to China.
Oil prices came under further downward pressure yesterday. ICE Brent settled almost 2.8% lower on the day, falling below $72/bbl.
US dollar strength – an ongoing theme since the US election – has provided strong headwinds not just to the oil market but also to the broader commodities complex, ING said in a note today.
In addition, prompt time spreads for Brent and WTI have collapsed recently, moving closer to contango, suggesting a better-supplied physical market, analysts added.
“Our oil balance through 2025 shows a surplus on the assumption that OPEC+ unwinds cuts as currently planned and that we do not see any dramatic changes to Iranian export volumes”, ING said.
OPEC will release its monthly oil market report today which will include its latest outlook for the market through 2025. There is the potential for further demand revisions from the group. Last month, OPEC cut its demand growth forecasts by 110,000 b/d and 100,000 b/d for 2024 and 2025 respectively.
However, the group still estimates demand to grow by 1.93 million b/d this year and 1.74 million b/d next year, which is still very aggressive compared to other demand estimates, which are nearer 1 million b/d, ING explained.
The rise of the US dollar against other currencies contributes to the decline in oil prices.
The US dollar index is currently trending upwards at 105.605. A strong dollar is expected to decrease oil demand, as it becomes more expensive for those using foreign currencies. #Oil Prices Fall on Strong U.S Dollar, China’s Weak Demand Oil Rises on Middle East Tensions, OPEC+ Output Decision
