Oil prices experienced a decline as market focus shifted back to demand prospects following reports of elevated producer prices in the United States, the world’s largest oil consumer. Concerns arose that persistent inflation and rising interest rates could impede growth in fuel consumption.
Brent crude futures saw a decrease of 61 cents, or 0.7%, reaching $82.86 a barrel by 0440 GMT. Meanwhile, the March contract for U.S. West Texas Intermediate (WTI) crude, due to expire on Tuesday, was down by 41 cents, or 0.5%, to $78.78. The WTI April contract fell by 0.8%, or 60 cents, to $77.86.
Both Brent and WTI contracts had recorded gains on Friday, driven by geopolitical tensions in the Middle East, which offset concerns about slowing demand projections from the International Energy Agency.
Phillip Nova analyst Priyanka Sachdeva noted, “WTI and Brent eased on Monday morning as investors re-adjust to demand-side fears after a significant jump in U.S. producer price index numbers.
The increase in U.S. producer prices in January, particularly in service costs, surpassed expectations, heightening worries about inflation. Investors are now awaiting clarity on demand trends from China as the country resumes activity after the week-long Lunar New Year holiday. Additionally, trade is expected to remain subdued due to Presidents’ Day in the United States.
Furthermore, the Federal Reserve’s indication of “patience” regarding interest rate adjustments added pressure on oil prices. Higher interest rates elevate the cost of purchasing oil, contributing to a bearish market sentiment.
Over the weekend, tensions persisted in the Middle East, with Israeli airstrikes damaging Gaza Strip’s second-largest hospital, and Yemen’s Iran-aligned Houthi fighters claiming responsibility for an oil tanker attack bound for India.
The Organization of the Petroleum Exporting Countries (OPEC) possesses significant spare capacity, standing at an eight-year high of 6.4 million barrels per day, which could mitigate disruptions in supply.
ANZ Research analysts highlighted the International Energy Agency’s cautionary note regarding weakening demand growth in 2024, forecasting a market surplus for the year.
The United Nations Security Council is expected to vote on Tuesday regarding an Algerian proposal for an immediate humanitarian ceasefire in the Israel-Hamas conflict, with the United States signaling a potential veto.
In Europe, Russia asserted control over the Ukrainian town of Avdiivka, marking its largest territorial gain in nine months. The recent passing of Alexei Navalny, a prominent critic of President Vladimir Putin, in a Russian penal colony raised questions about potential sanctions against Moscow, the world’s second-largest oil exporter.