Oil prices drop as weak economic data offset seasonal demand

Oil prices gained strength in early trading on Monday, with WTI price testing the $75.1 per barrel resistance. WTI price pared gains later in the day, dropping to the $73.5 per barrel mark. If oil prices retreat, they may encounter support near $69.6 per barrel, while resistance may be found near $75.1 per barrel.

Oil prices have been gaining strength since last week as cool weather forecasts lifted oil demand. On Monday, however, weak US economic data offset seasonal demand. US Services PMI and Factory orders released on Monday fell short of expectations, lowering the oil demand outlook and driving oil prices down. 

Reports that President-elect Donald Trump’s tariffs will be more moderate than previously anticipated, caused turmoil in markets on Monday. According to the Washington Post, Trump is considering imposing international tariffs only related to sectors deemed critical to national or economic security. Trump, however, later denied these rumors, stating that the claims by the Washington Post were completely false.

OPEC cut oil demand forecasts for 2024 and 2025 for the fifth month in a row in December. OPEC has cut 2024 demand growth by 210K barrels a day to 1.6 million barrels a day. The organization estimates that oil demand will drop by an additional 90K barrels per day into 2025. 

OPEC+ has announced that it will extend its voluntary production cuts until the end of the first quarter of 2025, however. Oil prices have been under pressure and the cartel is limiting production in an attempt to raise oil prices. 

Oil prices are kept in check by high central banks’ interest rates. The US Federal Reserve cut interest rates by 25 basis points at its latest meeting to a target range of 4.25% to 4.50%.  In his press conference after the policy meeting, Fed Chair Jerome Powell delivered a hawkish message, emphasizing the need to be cautious about further rate cuts. Powell stated that the Fed’s approach will remain data-driven and hinted that the pace of future rate cuts will be slower. In addition, the Fed’s latest dot plot indicated that only two rate cuts will take place in 2025, down from four projected in September.

Concerns of a broadening conflict in the Middle East have been boosting oil prices in the past year. The civil war in Syria has been rekindled, further destabilizing the region. Tensions between Israel and Lebanon have cooled after the ceasefire deal, but hostilities between Israel and Hamas continue in the Gaza area. In addition, the situation between Russia and Ukraine remains critical.

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Written by:
Myrsini Giannouli

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