On Tuesday, Brent oil prices fell by 0.8% as investors took profits on previous day’s gains, fuelled by concerns about a global economic slowdown and the risk of higher interest rates.
This decline in Brent crude came as the US Federal Reserve prepared to release minutes from its latest meeting on Wednesday, with recent data on core inflation raising fears that interest rates may stay higher for longer.
Brent crude oil, against which Nigerian oil is priced, dipped by 66 cents at $83.41 a barrel while US West Texas Intermediate (WTI) crude oil stood at $76.38. However, WTI futures did not settle on Monday due to a public holiday in the United States. The April WTI contract, which is currently the most active, was up 23 cents at $76.78.
According to Satoru Yoshida, a commodity analyst with Rakuten Securities, Brent crude has been trading within a range of $78 to $88 a barrel since late December, and investors are taking profits on concerns about more US interest rate hikes, while others maintain bullish sentiment on hopes for a demand recovery in China.
As China’s oil imports are expected to hit a record high in 2023 and demand from India surges amid tightening supplies, all eyes are now on the monetary policy of the United States, the world’s largest economy and biggest oil consumer.
While some analysts say oil prices could rise in the coming weeks due to undersupply and a demand rebound, the US interest rate hikes could still pose a risk to the market.
Edward Moya, an analyst at OANDA, notes that China’s demand for Russian crude is back to the levels seen at the beginning of the war in Ukraine, and the West will try to pressure China and India to seek alternative sources, which should keep the oil market tight.
Russia also plans to cut oil production by 500,000 barrels per day, or about 5% of its output, in March after the West imposed price caps on Russian oil and oil products.
Meanwhile, the Organization of the Petroleum Exporting Countries (OPEC) has raised its 2023 global oil demand growth forecast this month, but its monthly report showed crude oil output in January declined in Saudi Arabia, Iraq, and Iran as part of the organization’s deal.
The future direction of the oil market remains uncertain, and the market will likely remain in a tight range until there are more clear signs for the future direction of the US monetary policy and the economic recovery path in China. The recent decline in brent oil prices suggests that investors are taking a cautious approach, and any news or development in the market could cause significant price movements.