Oil Prices Retreat on Demand Growth Concerns
Demand concerns mount
Oil prices retreated Tuesday amid worries about the extent of demand growth in the coming year. By 09:00 ET (14.00 GMT), the futures traded 0.9% lower at $76.13 a barrel and the contract dropped 0.9% to $81.08 a barrel.
Data released earlier Tuesday showed the eurozone narrowly avoided a technical recession in the fourth quarter, as GDP in the region was flat. However, the lack of growth in this important region, particularly as the dominant German economy shrank in the final three months of 2023, is likely to weigh on demand for oil.
This lack of economic activity in the eurozone, coupled with China’s ailing real estate sector, is expected to impact the demand for oil. The Chinese economy grew 5.2% last year, according to official figures, but the nominal growth was just 4.2%, the lowest annual number since 1976.
Fed meeting in focus
In the U.S., traders are keeping an eye on the latest two-day policy-setting by the Federal Reserve, which starts later in the session. The Fed is widely expected to keep interest rates unchanged on Wednesday, but traders will be looking for clues as to when Fed officials think rate cuts are in order, as high interest rates weigh on economic activity.
The Energy Information Administration is scheduled to provide its estimate of U.S. crude stockpiles later in the session, after last week’s hefty 6.7 million barrel decline following weather-related supply disruptions.
Iranian exports vulnerable
Despite today’s weakness, the crude benchmarks retain underlying support as tensions remain fraught in the Middle East, with the U.S. vowing to take “all necessary actions” to defend its troops following a deadly drone attack in Jordan. The Biden administration has accused Iran of backing the militants who committed the attack, while Tehran has denied involvement.
However, it does raise concerns of a more direct confrontation between the two countries, with Iranian oil exports potentially vulnerable via potentially greater enforcement of sanctions.
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