Oil Prices Dip Amid Concerns Over Demand Slowdown and Geopolitical Instability
Oil Prices in Asian Trade
Oil prices dipped slightly in Asian trade on Monday due to persistent concerns over a looming demand slowdown, which offset fears of potential supply disruptions from new attacks in the Red Sea.
Geopolitical Instability in the Middle East
The Yemen-based, Iran-aligned Houthi group claimed responsibility for an attack on an oil tanker in the Red Sea, indicating little deescalation in geopolitical instability in the Middle East.
Impact on Oil Deliveries
A growing conflict in the Middle East, particularly in the wake of the Israel-Hamas war, has supported oil prices. However, fighting in the Red Sea has pointed to delayed oil deliveries to several parts of Asia and Europe.
Concerns Over Sluggish Demand
Gains in crude have been hampered by concerns over sluggish demand, especially in the face of higher U.S. interest rates and worsening economic conditions across the globe.
Warning of a Demand Slowdown
The International Energy Agency warned of a demand slowdown in 2024, coinciding with the UK and Japan entering a recession.
Impact on Oil Prices
Crude prices fell in Asian trade, with expiring in April dropping 0.7% to $82.91 a barrel, while fell 0.7% to $77.91 a barrel by 20:22 ET (01:22 GMT). Both contracts had risen about 2% in the prior week.
Trading Volumes and Market Holiday
Trading volumes are expected to be muted on Monday due to a U.S. market holiday.
Challenges Affecting Oil Prices
While oil prices saw two straight weeks of gains, they failed to make significant headway beyond the established trading range in 2024. The strength of the and U.S. inflation readings weighed on crude prices.
Impact of U.S. Inflation Data
Stronger-than-expected U.S. and inflation data raised concerns that the Federal Reserve will have little impetus to cut interest rates early in 2024, boosting the dollar.
Effect of Higher Rates on Crude Demand
Higher rates also bode poorly for crude demand, stifling economic activity.
Impact of U.S. Oil Production
U.S. oil production remained at record highs of over 13 million barrels per day, expected to plug any supply shortfalls arising from Middle East disruptions or output cuts by the Organization of Petroleum Exporting Countries.
