Oil prices experienced a decline on Friday, retracing from the previous day’s gains, as geopolitical tensions and disruptions in U.S. oil production were offset by apprehensions surrounding sluggish demand growth in China and robust supply forecasts.
Brent crude futures dipped 0.3%, or 23 cents, to $78.87 a barrel by 0420 GMT, while U.S. West Texas Intermediate crude futures (WTI) slid 7 cents to $74.01. Despite a 2% increase on Thursday, driven by optimistic projections from the International Energy Agency (IEA) and OPEC regarding global oil demand growth, both benchmarks are poised to conclude the week with a modest 1-2% uptick.
While the IEA raised its 2024 global oil demand growth forecast, caution lingers as its projection remains slightly more conservative than that of OPEC. The agency noted a well-supplied market due to robust growth outside the producer group, anticipating a 1.5 million bpd increase in world oil supply to reach a new high of 103.5 million bpd in 2024. This surge is propelled by record-setting output from the United States, Brazil, Guyana, and Canada.
Geopolitical tensions in the Middle East, specifically Pakistan’s retaliatory strikes on separatist militants inside Iran, contribute to market uncertainty. Despite traders avoiding short positions, concerns persist regarding the slow economic recovery in China and potential rekindling of U.S.-China conflicts ahead of the U.S. election, both factors influencing energy demand.
Hiroyuki Kikukawa, President of NS Trading, expressed caution among traders, stating, “Unless tensions in the Middle East quickly escalate further, WTI is likely to continue trading in a range around $70-$76.”
Ship-tracking data revealed that two oil tankers, initially diverting from the Red Sea due to regional tensions, have returned and passed through the Bab al-Mandab Strait. However, disruptions persist in the region, with tanker traffic down 58% for January 13-17 compared to the same period in 2023.
Continued attacks by Houthi rebels on U.S. ships and disruptions in North Dakota, where 40% of oil output remains shut-in due to extreme cold weather and operational challenges, add to the complex dynamics influencing global oil markets. The U.S. Energy Information Administration’s report on Thursday, indicating a larger-than-expected draw in crude inventories but rising gasoline and distillate inventories, further contributes to the nuanced landscape impacting oil prices.