Oil Prices Dip on Demand Fears, Fed Meeting Concerns

By Adedapo Adesanya

Oil prices fell on Monday amid concerns about demand growth ahead of key inflation data and a Federal Reserve meeting in the United States later this week.

Brent crude futures fell $2.95 or 3.9 per cent to settle at $71.84 a barrel, and the US West Texas Intermediate (WTI) crude futures dropped $3.05 or 4.4 per cent to trade at $67.12 a barrel.

Last week, both Brent and WTI posted a second straight weekly decline after disappointing Chinese economic data erased the price boost from Saudi Arabia’s pledge to cut production in July.

Now the focus has shifted to the US Federal Reserve, which will meet on Wednesday and is expected to leave interest rates unchanged this month.

Investors are concerned that rate hikes are likely to resume next month.

The US Fed’s rate hikes have always strengthened the Dollar, making commodities denominated in the US currency more expensive for holders of other currencies and weighing on prices.

Also weighing on investors’ minds, oil demand recovery has been muted in China, the top importer of crude oil and refined products.

Analysts noted that Chinese demand had shown no signs of materializing, and it could be as much as 2 million barrels a day.

There are definitely fears that the Organisation of the Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA) will cut their demand forecasts. Both will each release their monthly market updates on Tuesday.

Goldman Sachs cut its oil price forecasts early on Sunday, citing higher-than-expected supplies later this year and through 2024.

The bank’s December crude price forecast now stands at $86 a barrel for Brent, down from $95, and at $81 a barrel for WTI, down from $89.

US sour crude prices have also strengthened, reaching a one-year high as the government signalled it may finally be ready to begin refilling the strategic petroleum reserve (SPR).

The government announced the purchase of 3 million barrels of crude last week alongside plans for the purchase of another 3 million later in the year.