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Oil prices dip amid strong dollar and inflation concerns

oil prices, oil analysis,forex trading

On Monday, oil prices experienced a significant downturn, extending the downward trend observed in the previous session. This decline was primarily driven by the strengthening of the U.S. dollar, a consequence of market sentiments that anticipated a delay in the reduction of high U.S. interest rates due to higher-than-expected inflation rates.

The high interest rates in the U.S. have been a critical factor in restraining the growth of global fuel demand, as they influence economic activities and energy consumption patterns.

Brent crude futures experienced a modest decrease of 0.2%, or 14 cents, bringing the price down to $81.48 per barrel as of 0656 GMT. Simultaneously, U.S. West Texas Intermediate (WTI) crude futures also saw a drop of 0.3%, or 22 cents, resulting in a price of $76.27 per barrel. These price movements are closely linked to the fluctuations in the U.S. dollar's value. As the dollar strengthens, oil, which is priced in dollars, becomes more expensive for buyers using other currencies, thus potentially reducing demand.

The recent downturn in oil prices builds upon the losses incurred last week. During this period, Brent crude prices fell by approximately 2%, while WTI prices declined by more than 3%. These movements in the oil market were significantly influenced by a shift in the market's expectations regarding the timeline for U.S. interest rate cuts. Originally anticipated sooner, the cuts are now expected to be delayed by two months, a decision driven by a recent uptick in inflation rates.

Tina Teng, an independent analyst based in Auckland, provided insights into the current market dynamics. She highlighted that the previous week's optimistic market sentiment, partly fueled by a market rally led by Nvidia, is now diminishing.

This change is attributed to the market's adjustment to the likelihood of longer-than-expected high interest rates in the U.S., which has a cascading effect on various sectors, including commodities like oil.

Since November, the oil market has seen prices fluctuating between $70 and $90 per barrel. This price range is the result of various intersecting factors. On one hand, there has been an increase in oil supply, particularly from the U.S., and on the other hand, concerns over weakened demand from China have been persistent. Additionally, the supply cuts implemented by OPEC+ and the ongoing conflicts in two regions have also played a significant role in shaping the oil market dynamics.

Analysts from ANZ Bank have noted that oil prices are currently being influenced by a balance of bullish and bearish factors. The bullish factors include reduced output from OPEC and heightened geopolitical risks, which tend to push prices up. Conversely, bearish concerns are primarily centered around weak demand in China, which exerts downward pressure on prices.

This interplay of factors has left oil prices without clear direction, looking for fresh drivers to define their next move.

The ongoing conflict between Israel and Hamas in the Middle East is adding to the complexity of the global oil market. Jake Sullivan, the U.S. National Security Adviser, reported that while basic agreements have been reached regarding a hostage deal involving the United States, Egypt, Qatar, and Israel, negotiations are still in progress. Israeli Prime Minister Benjamin Netanyahu has expressed uncertainty about the deal's finalization, adding to the geopolitical uncertainties that can influence oil markets.

The geopolitical risk premium associated with attacks by Yemeni Houthis on ships in the Red Sea has been relatively modest, adding only about $2 per barrel to Brent crude prices, according to Goldman Sachs analysts.

However, these analysts have also revised their summer peak price forecast for Brent upwards to $87 per barrel, from an earlier prediction of $85. This adjustment is based on the impact of Red Sea disruptions, which have led to larger-than-expected reductions in oil stockpiles held by OECD countries.

Goldman Sachs continues to project an increase in oil demand of 1.5 million barrels per day (bpd) in 2024. However, the bank has made adjustments to its country-specific forecasts, reducing the expected demand from China while increasing projections for the U.S. and India. These adjustments reflect varying economic conditions and energy consumption patterns in these major economies.

The global oil market is also closely watching the impact of recent U.S. sanctions against Sovcomflot, Russia's leading tanker group. These sanctions could potentially affect Russian oil supply, adding another layer of uncertainty to the already complex global oil dynamics.

In response to global energy demands, Qatar has announced plans to further increase its production of liquefied natural gas (LNG). This decision comes despite a recent significant drop in global LNG prices, indicating Qatar's strategic positioning in the global energy market.

In the United States, ANZ analysts anticipate a potential decrease in oil stockpiles in the coming weeks. This expectation is based on the return of refineries from maintenance periods, which could lend some support to oil prices.

Additionally, U.S. energy firms have reportedly added the most oil rigs since November, marking the most significant monthly increase since October 2022, as reported by Baker Hughes, an energy services firm. This increase in rig activity signals an anticipated rise in U.S. oil production, which could further influence global oil supply and prices.

oil praices analysis, forex trading
XTI/USD daily chart, MetaTrader, 26.02.2024



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