By Adedapo Adesanya
The oil market depreciated in the first session of 2024 over interest rate worries amid concerns about tensions in the Red Sea expected to disrupt supplies.
Yesterday, Brent crude was down by $1.16 or 1.5 per cent to $75.88 a barrel and the US West Texas Intermediate (WTI) crude shrank by $1.22 or 1.7 per cent to $70.43 a barrel.
It was observed that trices were largely pressured by investors’ tempered expectations about interest rate cuts. They are betting that the US Federal Reserve could cut rates by as much as 1.5 per cent by the end of 2024, but that would still leave policy rates at close to 4 per cent, higher than where it has been for most of the past two decades.
At that level, monetary policy will still tell on growth, as it would be above the so-called neutral rate at which the economy neither expands nor contracts.
Also pressuring oil was the strengthening of the US Dollar on the first trading day of the year, supported by higher US yields.
The Dollar index, which measures the US currency against six counterparts, rose by 0.799 per cent, on track for its biggest daily percentage gain since October.
This is as it fell 2 per cent in 2023, snapping two years of gains due to investor expectations that the US Federal Reserve will cut rates significantly this year while the economy remains resilient.
Attacks on vessels in the Red Sea by Houthi rebels continued over the weekend, and analysts warned that the oil market will move higher only if shots are fired.
The world’s second-largest container line Moller-Maersk halted transit through the Red Sea less than a week after it had decided to resume navigation, with its Maersk Hangzhou tanker coming under attack by Houthi militias.
There was also the arrival of an Iranian warship on Monday.
In China, the world’s largest oil importer, investor expectations of economic stimulus measures rose after manufacturing activity shrank in December for a third month, government data showed on Sunday.
It is widely expected that such a stimulus could boost oil demand and support crude prices.
The Organisation of the Petroleum Exporting Countries and its allies (OPEC+) will hold a Joint Ministerial Monitoring Committee (JMMC) meeting sometime in early February.
OPEC+ typically holds JMMC meetings every other month, although volatile market conditions and member unrest have sometimes prompted the group to schedule meetings outside the every-other-month schedule.
OPEC+ members collectively decided to voluntarily cut 2.2 million barrels per day from the group’s production this quarter, although much of that was production cuts that were already in effect, including Saudi Arabia’s 1 million barrels per day voluntary cut.
While many OPEC+ members voluntarily agreed to cut their crude oil production. However, Angola raised worry about what it was asked to produce and decided to quit its membership in OPEC, citing the lack of benefits.
