Mon, January 30, 2023

Demand Fears Push Oil Value Even Lower

Oil

On Thursday, the attention shifted away from potential supply disruption and toward weak demand worries about a significant build-up in crude inventories in the US and a strong currency. As a result, oil prices began to drift lower.

By 0636 GMT, the benchmark Brent crude futures contract had lost 23 cents, or 0.2%, of its earlier gains and was trading at $93.87 per barrel. West Texas Intermediate crude for the United States dropped 9 cents, or 0.1%, to $88.39. According to EIA data, U.S. crude and distillate stocks increased more than anticipated in the most recent week, which suggests lower fuel demand and restrains oil prices.

 

Here Is What’s Happening

 

The higher dollar makes goods priced in dollars, such as crude oil, more costly for buyers using foreign currencies, reducing oil demand. The dollar index gained 0.2% on Thursday, near its most recent high. According to experts at Haitong Futures, the market will remain clouded, and the comeback in oil prices will be constrained by predictions of future U.S. interest rate increases. A continuing labor disagreement is making a U.S. rail strike more likely, supporting the market. Three unions are negotiating a new contract that may impact rail shipments, which are crucial for delivering goods like petroleum.

According to Clifford Bennett, chief economist at ACY Securities, the oil price has been pricing in a global recession, but even with flat global GDP, the oil demand would remain pretty high relative to persistent supply problems.

The market has recently been concentrating on the demand side. However, according to Bennett, it has likely priced in an overly large decline in real demand while neglecting the fact that supply might still be somewhat problematic. The International Energy Agency predicted that many people would move from using gas to oil for heating. They added that the increased oil demand from October 2022 to March 2023 would be an average of 700,000 barrels per day (BPD), or double the amount from the previous year. This, combined with general projections for sluggish supply growth, supported the market’s development.

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