Oil Prices Tilt Lower Amid China Demand Concerns and Supply Projections

Oil prices experienced a slight dip on Friday following a previous day’s rally. Geopolitical tensions and disruptions in U.S. oil production due to cold weather were countered by worries about sluggish demand growth in China and optimistic supply forecasts.

Brent crude futures dropped by 0.3% to $78.87 a barrel, and U.S. West Texas Intermediate crude futures (WTI) slid by 7 cents to $74.01, after both benchmarks recorded a 2% gain on Thursday. The International Energy Agency (IEA) and OPEC had projected robust global oil demand growth, contributing to the week’s overall 1-2% increase.

While the IEA raised its 2024 global oil demand growth forecast, concerns linger over China’s slow economic recovery. The IEA anticipates world oil supply to reach 103.5 million barrels per day in 2024, primarily driven by record-setting output from the United States, Brazil, Guyana, and Canada.

Geopolitical tensions heightened as Pakistan conducted strikes on separatist militants in Iran, escalating regional concerns. Traders remain cautious due to uncertainties surrounding China’s economic rebound and the potential impact of the U.S.-China conflict on energy demand.

Hiroyuki Kikukawa, president of NS Trading, noted, “Unless tensions in the Middle East quickly escalate further, WTI is likely to continue trading in a range around $70-$76.”

Ship-tracking data revealed that two oil tankers, initially avoiding the Red Sea, reversed course and passed through the Bab al-Mandab Strait. However, tensions in the region persist, disrupting global shipping and trade.

Houthi rebels continued attacks on U.S. ships, prolonging tensions in Yemen. Additionally, the U.S. Energy Information Administration (EIA) reported a larger-than-expected draw in crude inventories, but gasoline and distillate inventories reached multi-year highs.

Extreme cold weather and operational challenges led to a 40% shutdown of oil output in North Dakota, further impacting global supply dynamics.

Oil prices faced downward pressure amid China’s demand concerns, ample supply projections, and geopolitical uncertainties. The market remains sensitive to developments in the Middle East, U.S.-China relations, and the broader global economic recovery.

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