Oil Prices Dip in Asian Trade as Demand Concerns Persist
Oil prices experienced a slight decrease in Asian trade on Friday as worries over slowing demand continued to weigh them down. The International Energy Agency (IEA) issued a warning, and weak economic readings added to the concerns. However, despite volatile swings throughout the week, crude prices were still set for mild weekly gains. A drop in the value of the US dollar provided some relief to oil prices after the currency fell sharply from three-month highs, following weak US data. The focus now shifts to US inflation data, due later in the day, which will provide more cues on the direction of interest rates. Earlier in the week, stronger-than-expected data had largely removed the possibility of early interest rate cuts by the Federal Reserve.
Weekly Gains for Crude Prices, But Outlook Remains Gloomy
Brent oil expiring in April declined by 0.2% to $82.71 a barrel, while West Texas Intermediate fell 0.1% to $77.49 a barrel. However, both contracts recorded approximately 1% gains for the week. Despite these mild gains, the overall outlook for oil prices remains gloomy, particularly after the IEA released a report highlighting a slowdown in global oil demand. The agency adjusted its forecast for global oil growth in 2024 to 1.22 million barrels per day (bpd), down from the previous estimate of 1.24 million bpd. Additionally, the IEA projected higher supplies in 2024 due to record-high US production and reluctance among members of the Organization of Petroleum Exporting Countries (OPEC) to implement deeper supply cuts. The agency now anticipates a supply growth of 1.7 million bpd in 2024, up from the previous outlook of 1.5 million bpd.
Recession Signals Impact Oil Demand Prospects
The world's largest economies, including the eurozone and Japan, entered a technical recession in the fourth quarter of 2023, according to GDP data released on Thursday. Eurozone growth remained stagnant in the fourth quarter after experiencing a recession in the previous quarter. These readings have raised concerns about slowing economic growth and its potential impact on oil demand in the months ahead. China, the top importer, is also dealing with a sluggish economic rebound, although the week-long Lunar New Year holiday is expected to provide some support.
US Production and Inventory Data Add to Supply Concerns
Earlier in the week, inventory data revealed a significant increase in US inventories, as production soared to record highs of over 13 million bpd. Strong US production is likely to fill any supply gaps left by OPEC, as well as counter any potential disruptions in supply stemming from the Middle East.
Analyst comment
Negative news. Oil prices fell due to concerns over slowing demand and weak economic readings. However, a softer dollar offered some relief. Inflation data and recession signals from major economies add to the gloomy outlook. High US production and limited OPEC supply cuts further weigh on the market. Expectations are for oil prices to continue facing downward pressure.
