- Markets anticipate a drop in oil demand owing to China’s rise in COVID-19 cases.
- Oil demand in the US fell last week after data showed an increase in inventories by about 7.1 million barrels.
- The US dollar is edging higher after higher-than-expected PPI data.
On Thursday, crude oil (CL) futures prices struggled to regain footing after falling in the previous session due to a dimming picture for global demand. Both OPEC and the US Energy Department have lowered their demand projections. A rise in COVID-19 cases in China has renewed demand worries for the top petroleum importer in the world.
Last week, the Organization of the Petroleum Exporting Countries (OPEC) and its allies, which includes Russia, increased prices by agreeing to reduce production by 2 million barrels per day (bpd). However, OPEC reduced its forecast for demand growth this year by between 460,000 bpd and 2.64 million bpd on Wednesday, citing high inflation and China’s COVID-19 containment measures that have come back into play.
The US Energy Department revised its domestic and international production and demand projections. In 2023, it predicts only a 0.9% growth in US consumption, down from an earlier prediction of a 1.7% increase. The department now expects global consumption to increase by just 1.5% in contrast to an earlier prediction of 2% growth.
According to market sources quoting API data, US crude oil stocks increased by around 7.1 million barrels on October 7. The increase in inventories is a result of worsening crude oil demand.
The US dollar’s broad rally, which has included gains against low-yielding currencies like the yen, is also exerting pressure on the oil market.
Producer prices in the US rose by 0.4% in September, showing inflation is still stubbornly high. This value indicates consumer inflation; therefore, investors panicked at the rise, sending the dollar higher.
The Federal Reserve’s determination to maintain raising interest rates to combat excessive inflation has increased yields, which has increased the value of the US dollar in the eyes of overseas investors. A stronger dollar will continue hurting commodities like crude oil as they become more expensive, lowering demand. Investors will pay close attention to US inflation data coming out later in the day.