Oil prices experienced a downturn on Friday, largely influenced by emerging prospects of a ceasefire in Gaza, which could potentially alleviate geopolitical tensions in the volatile Middle East region. This development, coupled with a resurgence in the strength of the U.S. dollar and a dip in U.S. gasoline demand, exerted downward pressure on oil prices.
Brent crude futures saw a decline of 42 cents, equivalent to 0.5%, settling at $85.36 per barrel, while U.S. crude futures dropped by 40 cents, or 0.5%, to reach $80.67 per barrel. Despite these recent setbacks, both contracts are anticipated to conclude the week with minimal fluctuations, having registered a significant increase of over 3% in the preceding week.
The decline in oil prices on Friday can be attributed to reports suggesting the formulation of a U.N. draft resolution advocating for a ceasefire in Gaza. This news, combined with profit-taking activities within the market, contributed to the overall downward trajectory of oil prices. Furthermore, U.S. Secretary of State Antony Blinken’s expressed optimism regarding ongoing talks in Qatar potentially leading to a ceasefire agreement between Israel and Hamas provided additional impetus to the easing of geopolitical concerns.
Within the United States, the world’s largest oil consumer, there was a notable decline in gasoline product supplied, a key metric used as a proxy for demand. This decline, marking the first time in three weeks that gasoline product supplied fell below 9 million barrels, hints at a potential slowdown in crude demand within the U.S. market. However, consultancy firm FGE highlighted preliminary weekly data for the first half of March, which revealed a significant decrease in crude and main product stocks at major oil hubs globally. This notable reduction, surpassing the average drawdown recorded between 2015 and 2019, suggests a potentially bullish outlook for oil prices despite the current downward trend.
Meanwhile, the U.S. dollar, which trades inversely with oil prices, strengthened after the Swiss National Bank’s surprise interest rate cut bolstered global risk sentiment.
A stronger dollar makes oil more expensive for investors holding other currencies, dampening demand.