Oil Prices Forecast: Rangebound Amid Demand Worries, Dollar Strength

Key Points

• U.S. Dollar’s strength pressures oil prices downward.
• Geopolitical tensions provide a cautious balance to oil markets.
• Contrasting trends in crude and gasoline inventories raise concerns.

Market Overview

Oil prices are showing a mixed performance in overnight trading on Wednesday, initially dipping due to concerns over weak demand and a strengthening U.S. Dollar. However, these losses were partially offset by rising geopolitical tensions, leading to a cautious recovery in prices.

At 07:06 GMT, Light Crude Oil Futures are trading $74.53, up $0.16 or +0.22%. This is up from an intraday low of $74.20.

Supply Insights

The week saw a notable decrease in U.S. crude stocks, with a drawdown of 6.67 million barrels, according to the American Petroleum Institute (API). Contrasting with this, gasoline inventories surged by 7.2 million barrels, raising questions about fuel demand in the U.S. The market awaits further data from the upcoming U.S. Energy Information Administration (EIA) report for a clearer picture.

Geopolitically, the situation remains tense with U.S. and UK forces conducting strikes in Yemen and Iraq. This activity, aimed at securing trade routes, adds an element of uncertainty to the oil market. On a positive note, Libya’s Sharara oilfield is back online, and North Dakota is gradually restoring oil production after weather-induced disruptions.

Demand Concerns

The robust U.S. Dollar is applying downward pressure on oil prices, making dollar-denominated oil more expensive for foreign buyers and potentially curtailing demand.

Short-Term Forecast

The oil market is currently balancing between geopolitical risks and the interplay of supply and demand factors. While geopolitical tensions are preventing a steep decline in prices, they’re not sufficient to drive a significant rally. In the absence of further escalations, oil prices are likely to remain within their current range for the first quarter of 2024, keeping the market on a watchful footing for any changes in supply or demand patterns.

Technical Analysis