Concerns over Global Demand and Dollar Dominance Impact on Oil Markets
Oil prices faced downward pressure on Wednesday. Apprehensions regarding lacklustre demand and the resilience of the U.S. dollar offset the impact of escalating geopolitical tensions. Therefore preventing more significant losses.
Stockpiles Data Raises Questions about Fuel Demand
The March contract for Brent crude slipped by 0.1%, down 14 cents to $79.41 per barrel, while U.S. West Texas Intermediate crude also dipped 0.2%, losing 11 cents to $74.26 per barrel. Market sources citing American Petroleum Institute figures noted a decline of 6.67 million barrels in U.S. crude stocks for the week ending Jan. 19. However, a significant increase of 7.2 million barrels in gasoline inventories raised concerns about fuel demand in the world’s leading oil consumer.
Dollar Strength Adds to Oil Market Headwinds
The stronger U.S. dollar contributed to the pressure on oil prices. Besides, buyers in other currencies face higher costs for dollar-denominated oil. The dollar index held near a six-week high against major peers, reflecting investor expectations that the Federal Reserve would maintain interest rates, given the robust U.S. economy.
Geopolitical Unrest and Market Outlook
While geopolitical tensions supported oil prices, particularly in the Middle East, analysts anticipate crude to remain within its current range for the first quarter of 2024, barring any significant escalation. Macquarie’s Global Energy Strategist, Vikas Dwivedi, highlighted the expected stability in crude prices and downplayed the likelihood of supply loss.
Global Strikes and Supply Dynamics
A coalition of 24 nations, led by the U.S. and the UK, conducted strikes against Houthi fighters in Yemen, aiming to curb their attacks on global trade. The U.S. also targeted Iran-linked militia in Iraq, responding to an attack on an Iraqi air base. On the supply side, Libya’s Sharara oilfield resumed production after a pause related to protests, while North Dakota saw a partial recovery in oil output after weather-related disruptions.
Market Reaction and Future Considerations
The oil market settled lower in a volatile trading session, unable to sustain the gains driven by geopolitical factors on the previous day. The market remains attentive to the Energy Information Administration’s inventories report for the week through Jan. 19, expected to provide insights into crude stocks, distillates, and gasoline stocks.