Market wary of demand risks as oil prices jittery

As global demand weakness weighed on oil prices, they struggled to regain their footing in Asian trade on Thursday.

Despite the drop in Brent crude futures to $92.38 a barrel by 0310 GMT, it was still up seven cents, or 0.1 percent. The price of US West Texas Intermediate crude crude fell by 21 cents, or 0.2 percent, to $87.06 a barrel.

OPEC has cut its demand outlook, while Covid-19 cases flared up in China, causing fresh demand concerns for the world’s top crude importer.

Oil prices growth risks

Oil prices have been exposed to growth risks this week as the initial enthusiasm over Opec production cuts has waned.

A trade-off to further Fed tightening, the Opec production cuts may provide a floor for oil prices, but upside becomes limited.

As a result of an agreement between the Organisation of the Petroleum Exporting Countries (Opec) and its allies, including Russia, last week, oil prices rose.

So, as a result of China’s Covid-19 containment measures, Opec cut the demand growth forecast by 460,000 bpd to 2.64m bpd on Wednesday.

Growing supply problem

A growing supply problem and increasing demand fears are likely to keep commodity prices volatile, according to ANZ Research.

Despite the rising cases in Shanghai, there has been no relief from the Chinese authorities either, the analysts noted.

In the United States and globally, the US Energy Department lowered its expectations for both production and demand. According to the forecast, US consumption will grow just 0.9 percent in 2023, down from 1.7 percent previously. Global consumption is expected to rise just 1.5pc, down from 2pc previously predicted.

Crude oil demand

A decline in crude oil demand is contributing to an increase in crude oil inventories. According to market sources citing API data, crude oil stocks rose by about 7.1 million barrels last week.

As well, the US dollar has rallied broadly against low-yielding currencies like the yen, putting pressure on the energy market.

To stem high inflation, the Federal Reserve has raised interest rates, which has boosted yields, making the US dollar more attractive to foreigners.