Oil Prices Retreat over Demand Uncertainties
Oil prices decline amidst expectations of a lower global demand outlook and supply glut predictions. While the Middle East tensions persist, China and the U.S. demand outlook remain bleak due to weak economic data.
The market also expects the U.S. Fed rate cut to impact global commodities. The supply-side risk was heightened on the back of the European Union’s latest sanctions on Russia.
Anticipated U.S. Fed rate could ease energy cost pressures, but the president-elect plan to increase tariffs on other major economies has also been projected to trigger reprisal backlashes.
The Organisation of Petroleum Exporting Countries and Allies (OPEC+) becomes bearish on demand outlook. The oil group expects global demand to ease in 2025, following the World Bank supply glut report.
Brent fell to $73.92 per barrel. The US benchmark West Texas Intermediate also declined to $70.49 per barrel. Market participants are closely watching the Fed’s monetary decisions and statements by Chairman Jerome Powell following the Fed’s meeting for insights into future policy actions.
These uncertainties are contributing to volatility in the markets and are expected to impact oil prices. It is anticipated that the Fed will cut interest rates by 25 basis points this week.
Meanwhile, macroeconomic data from the US showed signs of slowing economic growth in the world’s largest oil consumer, putting additional pressure on prices.
The number of people applying for unemployment benefits for the first time in the US rose to 242,000 in the week ending December 7, surpassing market expectations. This increase raised concerns about demand, supporting the downward movement in oil prices.
However, concerns over reduced demand were somewhat alleviated by expectations surrounding US policy under President Donald Trump, including potential tax cuts, tariffs, and immigration restrictions, which could provide some support to the economy.
These factors helped to limit the downward price movements. Moreover, expectations that a stimulus package soon to be announced in China, the world’s largest oil importer, could boost economic growth and oil demand supported price rises.
Last week, OPEC released its latest monthly oil market report, where the group took the opportunity to revise down their demand growth forecasts once again.
OPEC lowered its 2024 demand growth estimate by 210,000 barrels per day to 1.61 million b/d, while for 2025, demand growth estimates were cut by 90,000 b/d to 1.45 million b/d.
For most analysts, these revisions do not come as a surprise, as OPEC has been more aggressive than the rest of the market when it comes to demand.
As for OPEC production, the group increased output by 104,000 b/d month on month to 26.66 million barrels per day in November. This increase was largely driven by Libya, which saw output grow 141,000 barrels per day month on month.
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