Oil prices faced an uphill battle on Monday as concerns over global economic challenges dampened the demand outlook, overshadowing geopolitical tensions in the Middle East and a recent attack on a Russian fuel export terminal.
Brent crude slipped by 0.1% to $78.47 a barrel, following a 54-cent drop on Friday.
Economic Uncertainty Casts Shadow on Oil Markets
Despite ongoing geopolitical unrest in Europe and the Middle East, sentiment in the crude oil market remained subdued. Analysts pointed to economic headwinds as a significant factor affecting the oil demand.
The front-month U.S. West Texas Intermediate crude futures for February delivery showed a modest increase of 11 cents to $73.52 a barrel, with the contract set to expire later in the day. The more active March WTI contract was at $73.21 a barrel, down 4 cents.
IG analyst Tony Sycamore remarked, "This morning's subdued re-open speaks volumes about current sentiment in the crude oil market despite ongoing geopolitical tensions in Europe and the Middle East."
Geopolitical events
Over the weekend, an alleged Ukrainian drone attack targeted a significant Russian fuel export terminal, resulting in a fire and the suspension of some operations, according to Russian producer Novatek.
Surprisingly, these developments failed to substantially impact oil prices, indicating a resilience against geopolitical uncertainties.
In the Middle East, the Gaza conflict persists, and the U.S. conducted a strike against a Houthi anti-ship missile preparing to launch into the Gulf of Aden on Saturday. The Red Sea and Gulf of Aden attacks by the Iran-aligned group have disrupted global trade and tightened crude markets in Europe and Africa.
Oil fundamentals pose challenges
Despite these geopolitical events, oil fundamentals continue to pose a headwind for prices. Sycamore highlighted that higher production, mixed growth outlooks in China and Europe, and slowing U.S. economic velocity contribute to the challenges faced by the oil market.
The latest demand growth forecasts by the U.S. Energy Information Administration, the International Energy Agency, and the Organization of the Petroleum Exporting Countries for 2024 vary between 1.24 million and 2.25 million barrels per day. However, all three organizations expect demand to decelerate in 2025.
Market experiences
With no major escalation in geopolitical tensions anticipated, crude oil is expected to undergo rangebound trading, influenced by downward pressure. The recent attack on the Russian fuel export terminal and other geopolitical events may not be sufficient to break the current trend.
Vandana Hari, founder of oil market analysis provider Vanda Insights, noted, "In the absence of any major escalation, crude is set for rangebound trading, with some downward pressure."
Adding to the complex landscape, Baker Hughes data revealed a decline in the number of oil rigs operating in the U.S., falling by two to 497 last week—the lowest since mid-November. This development could further contribute to the challenges faced by the oil market.
