A strong U.S. dollar weighed on the market ahead of important economic data from the Federal Reserve and the U.S. labour market, causing global oil prices to drop Monday, ending a five-session advance, according to Reuters.
As of 0800 GMT, Brent crude futures had dropped 28 cents, or 0.4%, to $76.23 per barrel, reversing Friday’s closing, when it was at its highest since October 14.
Similarly, Friday saw U.S. West Texas Intermediate (WTI) crude hit its highest level since October 11 before dropping 27 cents, or 0.4%, to $73.69 per barrel.
The recent spike in oil prices was driven by expectations of higher demand brought on by colder temperatures in the Northern Hemisphere and China’s fiscal stimulus plans to boost its faltering economy.
These increases have been restrained, though, by the strengthening of the US dollar, which raises the cost of oil, a commodity denominated in US dollars, for buyers abroad.
In her analysis released on Monday, Priyanka Sachdeva, a senior market analyst at Phillip Nova, stated that investors’ top concern is still the dollar’s strength. The markets remained cautious as the dollar stayed close to a two-year high.
Investor Response
In order to gain insight into the Federal Reserve’s monetary policy trajectory and its implications for energy consumption, investors are anxiously anticipating key economic measures later this week. Crucial advice is anticipated in the December payroll data, which is due on Friday, and the minutes of the Fed’s most recent meeting, which are set to be released on Wednesday.
- After three months of cuts, Saudi Aramco, the world’s largest oil supplier, announced its first crude price increase for Asian clients in February, further complicating the global oil market. Despite global difficulties, this action shows confidence in the resurgence of regional demand.
- Additionally, market mood is being shaped by worries about geopolitical events. Supply flows may be impacted by the possibility of tougher sanctions on Russian and Iranian oil exports. If more sanctions are put in place, analysts predict that Iran’s crude production might decrease by 300,000 barrels per day to 3.25 million barrels per day in the second quarter.
Domestic production in the US, meanwhile, is giving conflicting indications. The U.S. oil rig count, a predictive measure of production, dropped by one to 482 last week, according to data released by Baker Hughes on Friday. However, Market observers are cautious about the prospect of higher production under regulations that support the sector’s growth.
The impact of OPEC
Notwithstanding these advancements, the oil market in 2025 faces a wider supply glut. Analysts predict that rising non-OPEC supply, such as possible increases in U.S. output, may counteract rising global demand.
In December, analysts like Patrick De Haan, Head of Petroleum Analysis at GasBuddy, warned that OPEC might no longer have the same influence over world oil prices.
“OPEC’s significance has probably diminished. They’re always fighting for cheaper costs,” he said.
