Oil extended its losses on Monday morning when it started falling after the dollar started strengthening amid market concerns that higher-than-expected inflation might delay reductions in the interest rate which will continue to cap the global fuel demand for a few more months.
Brent crude oil futures fell by 35 cents or 0.41% to $81.27 per barrel, while the US West Texas Intermediate Crude oil futures were trading at $76.14 a barrel after a decline of 35 cents or 0.5% as the US Dollar (.DXY) strengthened in the forex market. The reason is that a stronger dollar makes it more difficult for other economies to purchase oil.
This dip is building on the losses seen last week, on concerns of a delaying interest rate cuts by approximately two months due to a higher than expected inflation. This resulted in Brent futures declining about 2% and WTI falling by more than 3%.
An Auckland-based independent analyst Tina Teng said after viewing the market that, “the risk-on sentiment seems to be in a retreat after the Nvidia-led market rally last week as higher-for-longer rate expectations lifted the U.S. dollar, pressuring commodity prices.”
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Oil Trading Range
Oil prices have been trading in a range of $70 to $90 a barrel for the past four months, as weaker demand for fuel in China and continuously rising supplies in the US have offset the impact of production cuts imposed by OPEC+ and two major wars raging across the globe.
A higher-than-expected inflation in the US and a strengthening dollar are seen as the additions to these factors which resulted in crude oil witnessing an extended period of losses.
Analysts at ANZ summarized the complete picture in these words that, “crude oil prices declined for want of fresh drivers. Oil has been caught between bullish factors such as lower OPEC output and elevated geopolitical risks and bearish concerns about weak demand in China.”
According to the analysts at Goldman Sachs, the geopolitical risk premium of war in the Middle East and Yemeni Houthis’ attacking the ships in the Red Sea remained in a moderate zone which boosted Brent futures by $2 a barrel only.
However, the analysts have raised their expectations for a summer peak at $87 a barrel, up from $85 a barrel as the conflict in the Red Sea has started driving a bigger impact in stocks held by countries that are members of the OECD.
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Oil Demand Growth in 2024
Goldman Sachs is still expecting that the global demand for crude oil will grow by 1.5 million barrels per day in 2024, but has reduced China’s share and increased those of the USA and India’s.
the analysts added that, “robust non-OPEC supply growth is likely to nearly keep pace with solid global demand growth.”
Meanwhile, the national security advisor for White House, Jake Sullivan, told CNN on Sunday that negotiators from the United States, Israel, Qatar, and Egypt have agreed on basic outlines of a prisoner exchange deal during talks in paris.
However, Israeli Prime Minister, Benjamin Netanyahu said that it is not clear if the deal would materialize or not.
Adding on to the global oil supplies, Qatar will further raise its LNG productions despite a steep drop in energy prices in recent weeks, which will further drive the prices downwards. On the other hand, analysts are expecting that US oil stockpiles might start falling in the coming weeks as refineries would return from the maintenance phase and would offer support to declining oil prices.
