Oil Prices Decline Amid Global Economic Concerns Impacting Demand Outlook

Oil prices faced further declines on Monday as global economic challenges weighed on the overall demand outlook for oil, overshadowing geopolitical issues in the Middle East and an attack on a Russian fuel export terminal over the weekend.

Brent crude experienced a decrease of 23 cents, or 0.3%, settling at $78.33 a barrel by 0732 GMT, following a 54-cent drop on Friday. Meanwhile, the front-month U.S. West Texas Intermediate crude futures for February delivery were down 28 cents to $73.13 a barrel, with the contract set to expire later on Monday. The more active March WTI contract stood at $73.04 a barrel, down 21 cents.

Despite reported geopolitical events, including a Ukrainian drone attack on a Russian fuel export terminal, oil prices showed limited movement. Novatek, a Russian producer, announced the suspension of some operations at the Baltic Sea terminal due to a fire caused by the alleged attack.

IG analyst Tony Sycamore noted that the subdued market reopening reflects the prevailing sentiment in the crude oil market, even amid ongoing geopolitical tensions in Europe and the Middle East.

According to Vandana Hari, founder of oil market analysis provider Vanda Insights, absent significant escalations, the crude market is likely to engage in rangebound trading with some downward pressure.

In the Middle East, conflicts persist, with the Gaza war ongoing, and the U.S. striking an anti-ship missile preparing to launch into the Gulf of Aden by Yemen’s Houthi militants on Saturday. These incidents have disrupted global trade and tightened European and African crude markets.

The premium of the first-month Brent contract to the six-month contract widened to $1.99 on Friday, the most significant difference since November. This backwardation structure suggests a perceived tightness in supply for prompt delivery.

Despite geopolitical factors, Sycamore highlighted that oil fundamentals continue to act as a headwind for prices. Increased production, mixed growth outlooks in China and Europe, and expectations of a considerably slowed U.S. economy, as indicated by upcoming GDP data, contribute to the challenging landscape.

The latest demand growth forecasts for 2024 from the U.S. Energy Information Administration, the International Energy Agency, and the Organization of the Petroleum Exporting Countries range widely between 1.24 million and 2.25 million barrels per day. However, all three organizations anticipate a deceleration in demand for 2025.

In related news, Baker Hughes data revealed a decrease in the number of oil rigs operating in the U.S., falling by two to 497 last week, reaching their lowest level since mid-November. Additionally, Libya’s Sharara oilfield resumed production on Sunday after protesters ended a sit-in that had halted output since early January, according to state oil company NOC.

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