Oil falls amid diminishing Middle East crises impact
Shafaq News / Oil prices fell on Wednesday following the rise of the US dollar and investor risk aversion, replacing concerns about tensions in the Middle East, including the ongoing attacks on ships in the Red Sea by Iran-backed Houthi rebels.
According to Reuters, Global benchmark Brent crude futures fell 52 cents, or 0.7%, to $77.77 a barrel by 0432 GMT. US West Texas Intermediate crude futures (WTI) fell 56 cents, or 0.8%, to $71.85 a barrel.
Brent crude rose slightly on Tuesday while WTI fell as investors saw fundamentals weakening in the U.S. but the ongoing naval and air conflicts in the Red Sea increased concerns of tankers having to reroute to avoid the area, increasing costs and the amount of time for deliveries.
China's economy in the fourth quarter expanded by 5.2% from a year earlier, which missed analyst expectations and calls into question forecasts that Chinese demand will propel stronger global oil growth in 2024.
The Chinese economic growth figure "doesn’t end the headwinds over crude oil demand, the Chinese outlook for 2024 and 2025 is still bleak," said Priyanka Sachdeva, senior market analyst at Phillip Nova.
"The oil industry was backing the notion that despite a bumpy recovery, oil demand from China has been resilient and will likely reach record levels in 2024."
Despite the less-than-expected economic growth, China's oil refinery throughput in 2023 rose 9.3% from a year earlier to a record, indicating the country's oil demand is elevated if not at the pace that some analysts are expecting.
Some signs of steady Chinese demand have appeared as the country's refiners are actively booking oil cargoes for delivery in March and April to replenish stockpiles, lock in relatively lower prices, and in anticipation of stronger demand in the second half of 2024.
Additionally, the US dollar hovered near a one-month high on Wednesday after comments from US Federal Reserve officials lowered expectations for aggressive interest rate cuts. The stronger greenback reduces demand for dollar-denominated oil for buyers paying with other currencies.
"Higher rates can lead to a weaker outlook for oil demand as economic activity tends to cool in a high-interest-rate environment leaving oil prices vulnerable," Sachdeva said.
The market continues to monitor the Red Sea situation. However, investor appears to be downplaying the threat of supply disruptions even as oil tankers are diverting their courses away from the waterway.
The U.S. on Tuesday mounted fresh strikes against Iran-aligned Houthi militants in Yemen after a Houthi hit a Greek vessel in the Red Sea.
"While oil benchmarks may not reflect the Red Sea attacks, the realized price for oil and oil products for consumers has increased given the disruption to trade flows through the Red Sea and Suez Canal," Vivek Dhar, director of mining and energy commodities strategist at the Commonwealth Bank of Australia, said in a note.
