Oil prices dropped in early Thursday trading, largely due to a stronger U.S. dollar and concerns over increased global oil production amid slower-than-expected demand growth.
Brent crude futures saw a decline of 0.6%, settling at $71.83 per barrel, while U.S. West Texas Intermediate crude dropped 0.7%, to $67.95 per barrel, according to Reuters.
“The primary driver of oil prices, both in the near term and looking ahead, will be the direction of the U.S. dollar,” said Phillip Nova’s investment analyst Danish Lim, adding that supply and demand dynamics had put pressure on prices recently.
Lim noted that the dollar’s recent rally has been a significant factor weighing on oil prices.
The U.S. dollar surged to a one-year high, extending its gains from Wednesday’s seven-month peak against major currencies, after U.S. inflation data for October came in as expected.
The data raised concerns about the persistence of inflationary pressures, which could prompt the Federal Reserve to maintain higher interest rates for longer.
A senior market analyst at OANDA, Kelvin Wong, described the current market conditions as “a concoction of weak demand factors.”
He highlighted the latest concerns, including the rally in U.S. 10-year Treasury yields and the surge in the 10-year breakeven inflation rate to 2.35%.
“(This) increases the odds of a shallow Fed interest rate cut cycle heading into 2025 (and) overall, there is less liquidity to stoke an increase in demand for oil,” he added.
The International Energy Agency’s oil market report, set to be released later today, is expected to provide further insights into current supply-demand dynamics.
Independent analyst Tina Teng noted that there are few factors supporting a bullish outlook for oil markets at the moment, particularly with slowing demand from China.
Additionally, some analysts are still assessing the potential impact of a possible Donald Trump U.S. presidential election win on oil prices, as his policies could influence domestic energy production and global market dynamics.
