Oil prices stall amid slowing demand forecasts, regional tensions

Weak U.S. retail sales data spurs optimism for rate cuts
Oil prices stall amid slowing demand forecasts, regional tensions
The IEA's revised forecast revealed a weaker global oil demand growth outlook

Oil prices remained relatively flat on Friday, following a surge driven by weak U.S. retail sales data that sparked hopes of earlier-than-expected interest rate cuts by the Federal Reserve. However, optimism was tempered by forecasts of slowing demand from the International Energy Agency (IEA) and escalating geopolitical tensions in the Middle East.

At 06:43 GMT, Brent crude futures recorded $82.77 per barrel, a 0.11 percent dip. Meanwhile, U.S. West Texas Intermediate (WTI) crude recorded $78.09 per barrel, a 0.08 percent increase.

Economic indicators

The recent drop in U.S. retail sales, as reported by the Commerce Department, revealed a significant decline of 0.8 percent in January, the largest since February 2023. This unexpected downturn fueled speculation that the Federal Reserve might intervene with interest rate cuts to bolster economic activity. Such measures typically stimulate oil demand and consequently lift oil prices. However, economists’ forecasts had predicted a more modest 0.1 percent decrease, adding a layer of uncertainty to market sentiment.

Factors influencing oil prices

The IEA’s revised forecast revealed a weaker global oil demand growth outlook. The Paris-based agency trimmed its 2024 growth estimate, citing declining momentum in oil consumption. Conversely, OPEC projected robust growth in demand.

The IEA’s monthly report projected that global oil demand will grow by 1.22 million barrels per day this year, slightly down from last month’s estimate. However, OPEC projected a much greater growth forecast of 2.25 million barrels per day.

The IEA’s cautionary stance weighed on market sentiment and contributed to the stagnation of oil prices.

Moreover, tensions in the Middle East escalated further, raising concerns in the global oil market. Analysts highlighted the potential for events in the region to disrupt oil supply chains and increase the risk premium on crude prices.

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Future outlook

Market analysts acknowledged the impact of both economic indicators and geopolitical developments on oil prices. They emphasized investors’ adjustment of positions ahead of the U.S. holiday, while also monitoring interest rate trends and geopolitical risks.

Furthermore, they underscored the significance of Middle East tensions in supporting oil prices and anticipated continued gains driven by the heightened risk premium.

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