HomeFutures and CommoditiesDrop in oil prices due to lower demand; tension in Middle East...

Drop in oil prices due to lower demand; tension in Middle East supports market.

Oil Prices Dip on Demand Concerns and Middle East Tensions

Demand concerns weigh on oil prices

Oil prices took a slight dip on Monday due to lingering worries about a potential slowdown in demand. These concerns overshadowed fears of supply disruptions resulting from new attacks in the Red Sea.

Price movements in the market

By 08:15 ET (13.15 GMT), the futures traded 0.3% lower at $78.26 a barrel, while the contract dropped 0.2% to $83.27 a barrel. Trading was relatively quiet due to a U.S. market holiday.

- Advertisement -

Geopolitical instability in the Middle East

The Iran-aligned Houthi group claimed responsibility for an attack on an oil tanker in the Red Sea, indicating ongoing geopolitical instability in the Middle East.

Impact of Middle East conflict on oil prices

Recent conflicts in the Middle East, especially in the aftermath of the Israel-Hamas war, have provided support for oil prices. The fighting in the Red Sea has led to potential delays in oil deliveries to parts of Asia and Europe.

Market reactions to Middle East conflict

Last week, front-month Brent and WTI futures recorded gains, reflecting an increased risk of the Middle East conflict expanding.

- Advertisement -

Challenges posed by demand concerns

However, the market started the new week with concerns over sluggish demand, influenced by higher U.S. interest rates and deteriorating global economic conditions.

Impact of U.S. interest rates on crude demand

Stronger-than-expected U.S. inflation data has raised concerns about the Federal Reserve’s reluctance to cut interest rates in the near future. Higher interest rates can dampen crude demand by limiting economic activity.

Warnings of a demand slowdown

The International Energy Agency has warned of a demand slowdown in 2024, coinciding with the UK and Japan entering a recession.

Factors affecting oil prices

Despite two consecutive weeks of gains, oil prices have struggled to make significant progress, partly due to recent dollar strength following strong U.S. inflation readings.

Production levels and supply shortfalls

Other data released last week showed U.S. oil production remaining at record highs, which is expected to offset any supply shortages resulting from Middle East disruptions or output cuts by the Organization of Petroleum Exporting Countries.

Must Read