Oil News: Is the Strong Dollar Poised to Extend Pressure on Oil Demand?

Why Did Crude Oil Prices Drop Last Week?

Crude oil futures declined sharply last week, with West Texas Intermediate (WTI) settling at $67.02, down 4.77%. Brent crude mirrored this slide, reflecting bearish sentiment driven by fundamental and technical pressures.

Is China’s Economic Slowdown Undermining Oil Markets?

China’s ongoing economic struggles are significantly dampening oil demand. Crude processing volumes fell 4.6% year-on-year in October, affected by temporary refinery closures and reduced operations at smaller facilities​. Broader challenges, including weak factory output and a real estate downturn, are reducing energy consumption in the world’s largest oil-importing nation. The IEA and OPEC both revised their demand growth forecasts downward, marking the fourth consecutive cut for OPEC this year​​.

What Role Does the U.S. Dollar Play in Oil’s Weakness?

A surging U.S. dollar has exacerbated oil’s downward trend. The greenback hit a one-year high, buoyed by strong U.S. retail sales data and Federal Reserve signals indicating no urgency to cut interest rates. Higher Treasury yields further strengthened the dollar, making oil more expensive for buyers using other currencies​​. This has curbed global demand for dollar-denominated crude, adding to bearish sentiment.

Are Rising U.S. Oil Supplies Outpacing Demand?

U.S. crude production reached a record 13.23 million barrels per day in 2023, with further increases projected for 2024​​. The EIA forecasts global production to rise to 102.6 million barrels per day next year, with U.S. output leading the charge. However, demand growth remains tepid, as China’s contribution is expected to slow significantly. While gasoline inventories fell last week to their lowest since November 2022, crude stockpiles rose, signaling weak domestic demand​​.

Will Technical Resistance Cap Prices?

Crude futures closed below the key Fibonacci level of $69.21, reinforcing bearish sentiment. Technical analysts suggest that sustained pressure could push prices toward support zones at $66 and $63.46. Overcoming resistance at $69.21 and $71.63 would require strong speculative buying, likely spurred only by a major supply disruption​.

What’s the Outlook for Oil Prices?

With demand faltering and supply increasing, the outlook remains bearish. The IEA’s projection of a supply surplus exceeding 1 million barrels per day by 2025, coupled with a strong U.S. dollar, points to continued downward pressure. Unless there’s a significant shift in fundamentals, crude prices could test lower technical levels in the near term​​.