Oil prices retreated on Monday, continuing their decline from the previous week as investors awaited crucial U.S. inflation data and updates on the global supply and demand dynamics for oil expected later in the week.
At 14:30 ET (18:30 GMT), U.S. crude futures dipped 0.1%, settling at $77.93 per barrel, while the Brent contract edged up 0.3% to $82.32 per barrel.
OPEC, EIA to provide fresh crude outlook
Monthly reports from OPEC and the International Energy Agency (IEA) are scheduled for release on Tuesday and Thursday, respectively. These reports will offer updated insights into the global crude demand and supply landscape, arriving at a time when concerns persist over sluggish demand.
OPEC’s January report maintained its forecast for robust demand growth, projecting an increase of 2.25 million barrels per day (bpd) in 2024 and 1.85 million bpd in 2025. In contrast, the IEA’s outlook suggested a potential slowdown in demand.
The timing of these updates coincides with the recent decision by OPEC and its allies, known as OPEC+, to extend voluntary production cuts of approximately 2.2 million bpd into the second quarter.
Moreover, the outlook for demand will also be influenced by expectations surrounding global interest rate adjustments. A slew of economic data releases this week is expected to shape the Federal Reserve’s monetary policy decisions during its upcoming meeting.
US CPI data, OPEC monthly report awaited
The upcoming U.S. consumer price index (CPI) inflation report, scheduled for release on Tuesday, is anticipated to provide further insights into the trajectory of interest rates.
Last week, Federal Reserve officials cautioned that inflation levels would largely dictate the timing of any interest rate adjustments in 2024. This warning, combined with a stronger-than-expected nonfarm payrolls report for February, heightened market concerns regarding the possibility of prolonged elevated U.S. interest rates.
Market expectations are that Tuesday’s CPI reading will indicate inflation remains significantly above the Federal Reserve’s 2% annual target. This scenario would likely offer the central bank little immediate motivation to consider interest rate cuts.
The anticipation of reduced interest rates often stimulates economic activity in the world’s largest energy consumer, potentially leading to increased demand for crude oil.
Supply still seen tight this year
Concerns over sluggish demand from the biggest crude importer in the world have largely offset market expectations for tighter supplies this year, even after the Organization of Petroleum Exporting Countries said it will maintain its current pace of production cuts.
With OPEC+ extending its voluntary production cut agreement until the end of Q2 2024, this could tighten the market as demand recovers from its seasonal lull. Disruptions in the Middle East are also expected to persist, as talks over an Israel-Hamas ceasefire fell through.
Saudi Aramco (TADAWUL:2222) is planning to reduce its supply of Arab heavy crude to term customers in Asia starting in April due to oilfield maintenance, while weekly data from Baker Hughes shows that the U.S. oil rigs rose by just two rigs over the last week, with the total oil rig count increasing to 504 for the week ending March 8.