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Wednesday saw oil prices dipping by approximately 1% influenced by China's underperforming economic growth and a strengthening U.S dollar. These two factors have sparked concerns over energy demand. The escalating conflict in the Red Sea has had a minimal effect on oil prices, despite the potential for supply interruption.
Brent and WTI Oil Futures
As of 1:19 p.m. EST or 1819 GMT, Brent crude futures had dropped 87 cents, equating to 1.1%, landing at $77.42 per barrel. Concurrently, U.S. West Texas Intermediate (WTI) crude futures recorded a decline of 49 cents, a 0.7% slump, to settle at $71.91.
The Red Sea Conflict and its Effect on Oil Prices
The ongoing air and sea confrontations in the Red Sea have had negligible impact on oil prices. The international worry over halted or rerouted tankers, resulting in increased shipping costs and delivery delay, has not bolstered oil prices. Tuesday saw the U.S. launching new strikes against Iran-aligned Houthi militants in Yemen, following a missile attack on a Greek vessel by Houthi forces.
IEA Forecasts Comfortable Oil Market
Despite these tensions in the Middle East, the International Energy Agency (IEA) remains optimistic. The agency's executive director, Fatih Birol, has forecast a balanced and comfortable state in global oil markets for this year. His prediction is based on an upswing in oil supply and a slowdown in the growth of demand.
China's Role in the Global Oil Industry
The last quarter of the year saw China's economy growing by 5.2% annually, falling short of analysts' predictions. This has brought into question the speculation that Chinese demand could drive global oil growth in 2024.
"The Chinese economic data presents persisting obstacles to crude oil demand. The 2024 and 2025 economic forecasts for China remain grim," stated Priyanka Sachdeva, a senior market analyst at Phillip Nova. She added that despite various hurdles in recovery, China's demand for oil has shown resilience and might even hit record highs in 2024.
Steady Chinese Demand and OPEC Optimism
In 2023, China's oil refinery throughput increased by 9.3%, hitting a new record, thus signalling enduring demand, albeit lower than what some analysts had anticipated. Additionally, OPEC has maintained hopeful expectations for robust oil demand in 2024, bolstered by China and the Middle East.
Changes in the U.S. monetary policy have also influenced oil prices, with the greenback reaching a one-month peak after Federal Reserve officials hinted at fewer interest rate rollbacks. As a result, demand for dollar-denominated oil has dwindled, particularly among buyers utilising other currencies.
Effects of Higher Interest Rates on Oil Demand
"Rising rates often give rise to a weaker forecast for oil demand. This happens because economic activity tends to slow down when interest rates are high, leaving oil prices susceptible," remarked Sachdeva.
U.S. Crude Supply Predictions
In the U.S., industry insiders predict a slide of approximately 300,000 million barrels in domestic crude stockpiles last week. This corresponds with the Reuters poll carried out before the initially scheduled release of inventory data from the American Petroleum Institute and the U.S. government on Wednesday and Thursday respectively.
