Oil prices continued to decline during trading on Tuesday, as Brent crude futures fell 0.29% to $ 71.62 a barrel, while US crude contracts fell by about 0.38% to $ 67.78 a barrel. The decline comes at a sensitive time for markets, as investors await the Organization of the Petroleum Exporting Countries (OPEC) monthly report that is expected to outline future outlook for demand and supply in the global market. In previous days, concerns about oversupply of oil pressured prices, especially after China announced a 10 trillion yuan ($1.4 trillion) economic stimulus package aimed at easing pressure on local governments.
Alongside these factors, oil is experiencing additional pressure from the appreciation of the U.S. dollar, which makes dollar-denominated goods, such as oil, more expensive for holders of other currencies. This appreciation of the dollar reinforces downward pressure on oil prices, as it reduces the ability of foreign importers to buy oil in the same quantities compared to previous prices.
OPEC’s monthly report is expected to be released later in the day, and investors and analysts are particularly anticipating the content of this report, as expectations suggest that the organization may downgrade its estimate for global oil demand growth in 2025. If this forecast materializes, it could increase pressure on prices and reinforce the downward trend in oil markets. Markets are also keeping an eye on US inflation data this week, along with upcoming comments by Fed officials. Federal Reserve, where oil prices will be affected by interest policy developments in the United States.
Factors that contributed to decline in oil
Oil prices have recently declined as a result of a combination of economic and political factors affecting global energy markets. One of the most prominent of these factors is the impact of oversupply and oversupply in the markets, which contributes to continuous price pressure. Although OPEC has made efforts to reduce production in an attempt to raise prices, increasing production from some oil-producing countries, such as the United States, has made it difficult to maintain a balance of supply and demand on the market.
In addition, fears of slowing global economic growth have put additional pressure on oil prices. China, the world’s second-largest economy, announced a 10 trillion yuan ($1.4 trillion) economic stimulus package aimed at stimulating the domestic economy, but the package was not enough to meet market expectations, raising doubts about the Chinese economy’s ability to regain momentum. As growth slows in China, one of the largest oil consumers, the outlook for global demand for global demand for oil, leading to lower prices.
Another factor contributing to the decline in oil prices is the appreciation of the US dollar. A strong dollar increases the cost of dollar-denominated commodities, such as oil, for holders of other currencies. This reduces the ability of countries that rely on other currencies to buy large quantities of oil, which leads to lower demand and negatively affects prices. These factors coincide with market expectations of further cuts in oil demand growth estimates for 2025, according to OPEC forecasts. As uncertainty grows about the economic future, especially amid global trade and political tensions, oil continues to face downward pressure.
The impact of US inflation data on oil prices
US inflation data significantly affects oil prices through several economic channels. Inflation serves as one of the key indicators that investors use to assess the health of the US economy and its impact on commodity markets. When inflation data shows high levels, the market expects the Federal Reserve to take action to raise interest rates to fight inflation. This leads to multiple effects on oil prices. First, raising interest rates increases the cost of borrowing, which could weaken economic growth.
If the U.S. economy is experiencing a slowdown due to tightening monetary policies, demand for oil from the industrial and transportation sector may decrease, thereby leading to a decline in oil prices. Second, higher interest rates boost the value of the U.S. dollar, making dollar-denominated oil more expensive for other countries that use different currencies. As a result, global oil demand may decrease, especially from countries facing Weak currencies compared to the US dollar, contributing to lower oil prices.
On the other hand, if inflation data shows that inflationary pressures are lower than expected, this may prompt the Federal Reserve to take a more flexible approach to its monetary policy, which means keeping interest rates low for longer. In such a situation, it can indirectly boost oil demand by stimulating the economy. Low interest rates boost economic activity, increase consumption and investment, and raise demand for energy and oil. Moreover, markets view US inflation data as evidence of economic stability or potential risks, so any surprise in inflation data, whether higher or lower than expected, can cause sharp volatility in oil markets. If the data comes in above expectations, it could increase expectations of a rate hike, putting pressure on oil prices.
