Traders evaluate demand outlook, leading to further decline in oil prices
Traders are closely evaluating the demand outlook for oil, which has resulted in a further decline in oil prices. The previous week saw a decrease in oil futures, and this trend continued on Monday as traders expressed concerns about the global demand outlook. The fading expectations of central banks cutting rates soon have contributed to this decline.
The West Texas Intermediate (WTI) crude for April delivery fell by 0.2% to $76.31 per barrel on the New York Mercantile Exchange. Additionally, the global benchmark, April Brent crude, was down 0.3% at $81.37 per barrel on ICE Futures Europe. The more actively traded May Brent crude fell by 0.3% to $80.57 per barrel.
Last week, crude prices experienced a pullback, with WTI reaching its lowest settlement since February 8 and Brent posting its lowest settlement since February 14. This decline can be attributed to market expectations of higher interest rates due to inflation levels remaining above the Federal Reserve’s target of 2%.
Ricardo Evangelista, a senior analyst at ActivTrades, stated that the markets have adjusted their expectations for interest rate cuts in response to inflation trends and the resilience of the U.S. economy. As a result, there has been a shift in forecasts for future oil demand, leading to lower expectations.
Investors initially anticipated six to seven quarter percentage point rate cuts throughout 2024, starting in March. However, as data emerged and the Federal Reserve pushed back on these expectations, the market now believes that there is a slightly better-than-50% chance that rate cuts will begin in June. Furthermore, investors now expect only three or four rate cuts by the end of the year.
In addition to these market factors, geopolitical turbulence in the Middle East and self-imposed output cuts by OPEC have placed pressure on oil supplies. However, the bearish demand outlook in China and the West has outweighed these supply-side pressures, resulting in oil prices remaining below the levels seen in the fourth quarter of last year.
While concerns about the Israel-Hamas war and potential escalation exist, crude supplies have not been significantly affected thus far. The ongoing fight against the Iran-backed Houthi group in Yemen, which has targeted shipping in the Red Sea with drone and missile attacks, has also not had a major impact on crude supplies.
In conclusion, traders are closely evaluating the demand outlook for oil, leading to a further decline in oil prices. The fading expectations of central banks cutting rates soon and concerns about future oil demand have contributed to this decline. Despite geopolitical turbulence and self-imposed output cuts by OPEC, the bearish demand outlook in China and the West has kept oil prices below the levels seen in the fourth quarter of last year.
