Oil prices continued to slide on Monday as economic headwinds dampened the global oil demand outlook and overshadowed geopolitical tensions in the Middle East and Europe. Brent crude, the international benchmark, dropped 41 cents, or 0.5%, to $78.15 a barrel by 0105 GMT after settling down 54 cents on Friday. The U.S. West Texas Intermediate (WTI) crude futures, for February delivery, edged down 2 cents to $73.39 a barrel with the contract set to expire later on Monday. The more active March WTI contract was at $72.95 a barrel, down 30 cents.
Economic data and oil fundamentals weigh on prices
“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,” IG analyst Tony Sycamore said.
Prices barely budged despite an alleged Ukrainian drone attack at a huge Russian fuel export terminal over the weekend. Russian producer Novatek said on Sunday it had been forced to suspend some operations at the Baltic Sea terminal because of a fire.
In the Middle East, the Gaza war rages on while the U.S. struck another anti-ship missile preparing to launch into the Gulf of Aden by Yemen’s Houthi militants on Saturday.
The attacks by the Iran-aligned group in the Red Sea and the Gulf of Aden have disrupted global trade and pushed up oil prices earlier this month.
However, Sycamore said oil fundamentals remain a headwind for prices as production is higher and growth outlook in China and Europe is mixed at best.
He added that GDP data this week is expected to show that the U.S. economy has slowed considerably amid rising inflation and supply chain bottlenecks.
The latest demand growth forecasts by the U.S. Energy Information Administration (EIA), the International Energy Agency (IEA) and OPEC for 2024 are in a wide range between 1.24 million and 2.25 million barrels per day although all three organizations expect demand to decelerate in 2025.
Oil rigs decline amid cold weather conditions
The number of oil rigs operating in the U.S. fell by two to 497 last week, their lowest since mid-November, Baker Hughes data showed on Friday.
“We assume that these losses were due to rigs that were not able to safely re-activate due to cold weather conditions,” JP Morgan analysts said in a note.
They added that they expect oil prices to remain under pressure until OPEC+ decides whether to extend its output cuts beyond March next year or not.
OPEC+ has been producing around 9 million barrels per day since April last year to support prices amid weak demand due to the pandemic.
However, some members such as Saudi Arabia have been reluctant to cut more output as they seek higher revenues from their allies who are recovering faster from Covid-19.
The group is expected to meet again later this month or early next month to review its policy stance amid rising inflation and supply disruptions caused by natural disasters such as floods in Canada and fires in Brazil.
