Oil prices head for lowest finish in a week on strong dollar, demand concerns

Oil futures fell Wednesday, with U.S. and global benchmark prices headed for their lowest settlements in a week, as the U.S. dollar held near a one-month high and traders showed concerns over the outlook for energy demand.

Traders continued to play down worries over the potential for a wider conflict in the Middle East that could hit crude supplies.

Price moves

  • West Texas Intermediate crude for February delivery
    CL00,
    -0.95%

    CL.1,
    -0.95%

    CLG24,
    -0.95%
    fell 96 cents, or 1.3%, to $71.44 a barrel on the New York Mercantile Exchange.

  • March Brent crude
    BRN00,
    -1.28%

    BRNH24,
    -1.28%,
    the global benchmark, dropped $1.17, or 1.5%, to $77.12 a barrel on ICE Futures Europe. Brent and WTI crude were both on track to settle at their lowest levels in a week.

  • February gasoline
    RBG24,
    -0.38%
    declined by 1% to $2.1007 a gallon, while February heating oil
    HOG24,
    -0.79%
    lost 1.2% to $2.6277 a gallon.

  • Natural gas for February delivery
    NGG24,
    -2.97%
    traded at $2.822 per million British thermal units, down 2.7%

Market drivers

Oil prices remain on edge, but have yet to break out from a three-week trading range, “suggesting the market remains fundamentally fragile,” said Peter Cardillo, chief market economist at Spartan Capital, in a note.

“On the other hand, a full breakout of the war against Israel from other Middle Eastern nations would disrupt the supply chain and send oil prices skyrocketing,” he said.

Traders so far have largely looked past the threat of supply disruptions, even after a U.S.-led coalition delivered strikes against the Houthis after the militants defied an ultimatum to halt attacks on shipping.

For now, oil prices, along with other commodities, were “getting crushed as the dollar hit new highs based on fears that because of some Fed-speak, the pace of interest rate cuts might not be etched in stone,” said Phil Flynn, senior market analyst at The Price Futures Group, in a daily report.

The ICE U.S. Dollar Index
DXY,
a measure of the currency against a basket of six major rivals, rose Tuesday to a roughly one-month high after Federal Reserve Gov. Christopher Waller said monetary policymakers would be in no rush to deliver rate cuts in 2024.

A stronger U.S. currency can make dollar-priced oil more expensive to overseas buyers.

Traders also weighed the latest official Chinese data released Wednesday that showed China’s economy grew 5.2% for 2023, surpassing the target of “about 5%” that the government had set, following a pickup in growth in the fourth quarter. The reading, however, came in below some analyst expectations for growth of 5.3%.

The reading was disappointing to some, and the market may be taking that as a “sign that the Middle Kingdom’s economy continues to struggle,” said Colin Cieszynski, portfolio manager and chief market strategist at SIA Wealth Management.

Meanwhile, the Organization of the Petroleum Exporting Countries forecast in a monthly report Wednesday that global oil demand will grow by 2.2 million barrels per day this year, unchanged from its previous projection.

In a separate statement on OPEC’s website dated Wednesday, OPEC Secretary-General Haitham Al Ghais said that past predictions of oil supply peaking were “way off the mark” and misled by “mistaken assumptions on the size of the recoverable resource base, an underestimation of the impact of technology advancement, and the general resourcefulness of the industry.”

Weekly data on U.S. petroleum supplies will released by the Energy Information Administration on Thursday, a day later than usual due to Monday’s Martin Luther King Jr. holiday.

Analysts at Macquarie expect the report to show a climb of 5.5 million barrels in domestic crude inventories for the week ending Jan. 12. They also forecast supply gains of 7.5 million barrels for gasoline and 2.4 million barrels for distillates.

See: The U.S. is breaking oil-production records with fewer drilling rigs. Here’s how.

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