Oil prices slide on demand fears, strengthened Dollar

January 24, 2024 (MLN): Global oil prices fell on Wednesday, weighed down by potential demand concerns and a stronger dollar.

Brent crude is currently trading at $79.06 per barrel, down by 0.2% on the day.

Meanwhile, West Texas Intermediate crude (WTI) is trading at $74.25 per barrel, down by 0.23% compared to the previous close.

Both benchmarks gained 0.2% and 0.75% respectively last week as the market weighed on potential supply disruptions stemming from the escalating conflicts in the Middle East.

U.S. crude stocks fell by 6.67 million barrels in the week ended January 19, according to market sources citing American Petroleum Institute figures on Tuesday, as Reuters reported.

Gasoline inventories, however, increased by 7.2 million barrels, stoking concerns over fuel demand in the world's top oil consumer.

The Energy Information Administration (EIA), the statistical arm of the U.S. Department of Energy, will release the data later on Wednesday.

A stronger U.S. dollar also weighed on oil prices as demand from buyers in other currencies ebbs as they have to pay more for dollar-denominated oil.

The dollar index hovered near a six-week high against major peers on Wednesday as investors cemented expectations that the Federal Reserve would be in no rush to cut interest rates in the face of a resilient U.S. economy.

"Without current geopolitical tensions, we believe crude would sell off meaningfully. Over time, we expect supply risk premiums to decouple from conflict risk, analogous to Russia-Ukraine," said Vikas Dwivedi, global energy strategist at Macquarie, in a note.

"Barring escalation in the Middle East, we expect crude price to stay in the current range for 1Q24. We do not anticipate supply loss," said Dwivedi.

On the supply side, Libya's 300,000 bpd Sharara oilfield restarted on January 21 after a protest-related pause since early January.

Elsewhere, U.S.'s third-largest oil-producing state of North Dakota brought some oil output back online after weather-related disruption, the state's pipeline authority said. But output was still down as much as 300,000 barrels per day (bpd).

In mid-January, output had weakened by as much as 425,000 bpd on extreme cold.

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