Oil prices retreated on Tuesday, snapping a five-day winning streak, as markets refocused on concerns about demand after OPEC on Monday lowered its forecast for demand growth in 2024 due to softer expectations in China.
Global benchmark Brent crude futures dipped 78 cents, or 0.95 percent, to $81.52 a barrel at 03:30 GMT. U.S. West Texas Intermediate crude futures slid to $79.33 a barrel, down 73 cents, or 0.91 percent.
OPEC cuts 2024 demand forecast
The reduction in OPEC‘s 2024 global demand outlook highlighted the dilemma faced by the wider OPEC+ group in raising production from October. This was the first cut to OPEC’s 2024 forecast since it was made in July 2023, coming after mounting signs that demand in China has lagged expectations due to sluggish diesel consumption and the crisis in the property sector weighing on the world’s second-largest economy.
Concerns over economic risks and inflation
“Crude oil demand concerns remain on the radar,” said Yeap Jun Rong, market strategist at IG, noting lingering reservations ahead of upcoming U.S. inflation data. “Any reflection of higher economic risks could weigh on oil prices, at a time when OPEC+ has cut their 2024 demand forecast and are set to roll back their production cuts starting October, which may point to a less tight oil market ahead,” Yeap added.
Geopolitical tensions, potential rate cuts
However, investors remained watchful of the latest geopolitical tensions, as any escalation in the Middle East conflict could tighten access to global crude supplies and push prices higher.
Markets are also bracing for Wednesday’s U.S. consumer price index report, which will provide crucial insight into the inflation outlook. Investors are now concerned that an overly subdued CPI number could stoke fears of an economic downturn.
Moreover, money markets have even priced in bets on a 25- or 50-basis-point cut in U.S. interest rates in September, expecting a total easing of 100 bps by the end of 2024, according to CME’s FedWatch Tool. Rate cuts tend to boost economic activity, which in turn increases the demand for energy sources like oil.
For more news on markets, click here.
