Oil prices drop on US economic concerns

Oil prices weakened on Thursday, with WTI price dropping to $73.7 per barrel. If WTI price declines, it may encounter support near $67.6 per barrel, while resistance may be found near $75.0 per barrel.

US Final GDP for Q3 of 2023 was revised lower on Thursday, putting pressure on oil prices on rising concerns that low economic growth may limit oil demand. Preliminary GDP indicated that the US economy expanded by 5.2% in the third quarter of 2023, but the final print was revised lower to 4.9%. 

A buildup in US crude oil inventories on Wednesday put pressure on oil prices. The US Energy Information Administration reported a rise in US oil inventories by 2.9M barrels the week before, far exceeding expectations of a drop by 2.3M barrels.

Supply concerns boosted oil prices this week as the crisis in the Gaza area threatens to disrupt oil distribution. Geopolitical tensions are rising in the Red Sea, spilling over the region from the war in Gaza. Tensions around the Red Sea area have been rising in the past few days, raising concerns that hostilities may spread in the Middle East, affecting oil supply and distribution. Iran-backed Houthi militants attacked commercial vessels in the Red Sea earlier this week. BP and other oil companies announced on Monday that they have paused all transit through the Red Sea.

OPEC+ producers recently agreed to over 2 million barrels per day of voluntary cuts to boost oil prices, extending already existing output cuts into the first quarter of 2024 and adding even more. 

Global economic concerns are dampening the oil demand outlook, however, putting pressure on oil prices. China’s oil demand outlook is decreasing, as the country’s economic growth is disappointing. 

Oil prices are also kept in check by a strong US dollar and high-interest rates. Most major central banks, however, are hitting pause on rate hikes, boosting oil prices. The Fed kept interest rates unchanged at its December meeting, within a target range of 5.25% to 5.50%. 

The Fed’s forward guidance was more dovish than expected, hinting that the central bank is preparing to pivot to a less restrictive monetary policy. Market expectations of future rate cuts increase oil demand outlook, boosting oil prices. 

TRADE WTI

The content provided in this material and/or any other material that this content is referred to, whether it comes from a third party or not, is for information purposes only and shall not be considered as a recommendation and/or investment advice and/or investment research and/or suggestions for performing any actions with financial products or instruments, or to participate in any particular trading strategy and cannot guarantee any profits. Past performance does not constitute a reliable indicator of future results. TopFX does not represent that the material provided here is accurate, current, or complete and therefore shouldn't be relied upon as such. This material does not take into account the reader's financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of TopFX, no reproduction or redistribution of the information provided herein is permitted.

Written by:
Myrsini Giannouli

Share the article: