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Oil Prices Decline Amid Concerns Over Sticky US Inflation and Demand Outlook

by Jennifer

On Monday, oil prices experienced a downturn as investor focus shifted back to the demand outlook following reports of increased producer prices in the United States, the world’s largest oil consumer. The surge in prices raised concerns that persistent inflation and higher interest rates could hamper growth in fuel consumption.

At 0720 GMT, Brent crude futures dropped by 55 cents, or 0.7%, to $82.92 per barrel. Meanwhile, the March contract for U.S. West Texas Intermediate (WTI) crude, expiring on Tuesday, declined by 41 cents, or 0.5%, to $78.78. The WTI April contract also fell by 54 cents, or 0.7%, to $77.92.

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Both Brent and WTI contracts had seen gains on Friday due to geopolitical tensions in the Middle East, which offset concerns about slowing demand projections from the International Energy Agency.

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Phillip Nova analyst Priyanka Sachdeva commented on the situation, noting that WTI and Brent prices eased on Monday as investors recalibrated their expectations amid fears about demand following a notable increase in U.S. producer price index figures.

In January, U.S. producer prices rose more than anticipated, driven by significant gains in service costs, raising worries about inflation. Additionally, uncertainty remains about the direction of demand from China after its week-long Lunar New Year holiday, while Presidents’ Day in the United States is expected to keep trading relatively subdued.

Moreover, Federal Reserve policymakers indicated a “patient” approach toward interest rate cuts, which could further impact oil prices as higher rates increase the cost of purchasing oil, contributing to a bearish market sentiment.

Tensions persisted in the Middle East over the weekend, with Israeli raids affecting Gaza’s second-largest hospital and Yemen’s Iran-aligned Houthi fighters claiming responsibility for an attack on an India-bound oil tanker.

ANZ Research analysts highlighted that the Organization of the Petroleum Exporting Countries (OPEC) could handle most levels of disruption, given its spare capacity, which stands at an eight-year high of 6.4 million barrels of oil per day.

Furthermore, the International Energy Agency warned of waning growth in 2024, projecting a market surplus during the year, adding to concerns about demand outlook.

On the diplomatic front, the United Nations Security Council is expected to vote on an Algerian proposal for an immediate humanitarian ceasefire in the Israel-Hamas conflict, while Russia claimed control of the Ukrainian town of Avdiivka, marking its significant territorial gain in nine months.

The recent death of Alexei Navalny, a prominent opponent of Russian President Vladimir Putin, in a Russian Arctic penal colony on Friday, raised questions about potential new sanctions on Moscow, a major oil exporter.

Overall, the fluctuating dynamics in geopolitical tensions, inflation concerns, and demand outlook continue to influence oil prices in the global market.

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