Oil prices drop as market attention shifts back to demand concerns

8/13/2024 4:26:03 AM

(MENAFN) Oil prices experienced a slight decline on Tuesday, ending a five-day streak of gains as market attention shifted back to concerns over demand. This shift occurred after OPEC reduced its forecast for demand growth in 2024 on Monday, citing a weaker economic outlook in China.

By 0005 GMT, brent crude futures had dropped by 41 cents, or 0.5 percent, to USD81.89 per barrel. Similarly, U.S. West Texas Intermediate (WTI) crude futures fell by 43 cents, or 0.5 percent, settling at USD79.63 per barrel.

On Monday, Brent crude had surged by over 3 percent, while U.S. crude futures saw an increase of more than 4 percent, according to a news agency report. However, OPEC's recent downward adjustment to its global oil demand forecast for 2024 has underscored the challenges faced by the broader OPEC+ alliance in raising production starting in October.

This revision marks OPEC's first reduction in its demand forecast since July 2023. The adjustment comes amid increasing signs that demand in China, the world's second-largest economy, is falling short of expectations due to lower diesel consumption and ongoing issues in the property sector.

Meanwhile, tensions in the Middle East are intensifying, with the United States preparing for potential major attacks by Iran or its proxies in the region this week, according to John Kirby, the White House National Security spokesman. Analysts have warned that any such attack could disrupt global oil supplies, potentially causing prices to spike. Additionally, it could lead the U.S. to impose a ban on Iranian oil exports, which would impact the global supply of about 1.5 million barrels per day.

Markets are also focused on the upcoming U.S. Consumer Price Index (CPI) report, set to be released on Wednesday, which is expected to provide crucial insights into inflation trends. Investors are increasingly concerned that negative economic data could heighten fears of a potential economic slowdown.

According to the CME FedWatch tool, financial markets are currently anticipating a 25-50 basis point reduction in U.S. interest rates in September, with expectations of a total of 100 basis points of monetary easing by the end of the year. A lower interest rate environment typically stimulates economic activity, which in turn boosts the consumption of energy sources like oil.

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