Oil prices edged lower on Monday amidst thin trading activity. A combination of factors, including concerns over a potential supply surplus in 2024, a strengthening U.S. dollar, and mixed signals about global economic growth, contributed to the dip in crude prices.
On Monday, Brent crude futures had fallen by $0.66, or 0.9%, settling at $72.28 per barrel. Similarly, U.S. West Texas Intermediate (WTI) crude futures declined by $0.52, or 0.75%, to $68.94 per barrel.
These declines reflect a cautious mood in the market, as traders weigh economic and geopolitical factors influencing oil supply and demand.
A major factor pressuring oil prices is the outlook for a growing supply surplus in 2024. According to a December report by Macquarie analysts, Brent crude prices are projected to average $70.50 per barrel next year, a notable drop from this year’s average of $79.64 per barrel.
The potential surplus stems from various factors, including steady production levels and shifting global demand dynamics. This bearish forecast is shaping investor sentiment as the industry looks ahead to the new year.
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Concerns about oil supply disruptions in Europe eased following reports that the Druzhba pipeline—a key conduit for Russian and Kazakh oil to countries such as Hungary, Slovakia, the Czech Republic, and Germany—had resumed operations.
The pipeline had been temporarily halted on Thursday due to technical issues at a Russian pumping station, sparking fears of prolonged supply interruptions.
The U.S. dollar reached a two-year high on Monday morning, continuing its upward trend after hitting that milestone last Friday. This strengthening dollar is exerting downward pressure on oil prices, as a stronger dollar makes crude more expensive for holders of other currencies.
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“Oil prices have given up earlier gains due to the shift in the U.S. dollar from weaker to stronger,” said Giovanni Staunovo, an analyst at UBS.
U.S. inflation data released last Friday provided some relief, showing signs of cooling. This followed the Federal Reserve’s decision to cut interest rates last week, which initially fueled hopes for a more accommodative monetary policy.
However, mixed signals from the Fed and a slew of less-than-robust economic data have left the market uncertain. “With the Fed sending mixed signals and some of these economic data points not being all that robust, the market is listless,” noted John Kilduff, a partner at Again Capital in New York.
Last week, Brent futures dropped by approximately 2.1%, while WTI futures slid 2.6%, as concerns about slowing global economic growth and oil demand continued to weigh on the market.
Adding to the bearish sentiment, research from China’s top refiner, Sinopec, suggested that the nation’s oil consumption is expected to peak in 2027. As the world’s largest importer of crude oil, China’s consumption trends play a pivotal role in shaping global demand.