. Oil Prices Dip: Middle East Tensions and Data Awaited

Oil Prices Dip: Middle East Tensions and Data Awaited

Oil Prices Dip: Middle East Tensions and Data Awaited

15 Jan 2024

Oil prices dip, consolidating in anticipation of a week filled with significant data releases.

On Monday, oil prices retreated as markets awaited developments in the Middle East conflict, with anticipation of key U.S. and Chinese economic readings keeping sentiment on edge.

By 05:15 ET (10:15 GMT), Brent oil futures dropped 0.8% to $77.66 a barrel, while West Texas Intermediate crude futures fell 0.9% to $72.16 a barrel. A U.S. market holiday is expected to keep trading volumes thin.

Geopolitical tensions in the Middle East, including U.S. and British strikes against the Iran-backed Houthi group in Yemen, raised concerns about broader conflict and potential disruptions to oil supply.

The market is monitoring any potential retaliation by the Houthis after last week’s strikes. Analysts at ING noted growing geopolitical risks but highlighted that there is currently no reduction in oil supply due to developments in the region.

However, the more escalation occurs, the greater the market will have to consider a higher risk of supply disruptions.

Oil prices continue to face challenges in 2024, having dropped over 10% in the past year, as concerns persist about limited improvement in global crude demand amid high-interest rates, cooling economic growth, and persistent inflation.

China and US data awaited more demand cues

The attention is now directed toward crucial upcoming economic indicators from the U.S. and China this week, providing further insights into the potential trajectory of demand.

China’s central bank opted not to reduce medium-term lending rates on Monday, sparking concerns about the measures available to support a decelerating economic recovery.

The focus intensifies on Wednesday with the release of China’s fourth-quarter gross domestic product (GDP) data, expected to establish the tone for the country’s economy in 2024. The GDP is anticipated to marginally surpass the government’s 5% annual target, yet this increase is influenced by a lower comparison base from the previous year.

In the United States, market participants will closely monitor speeches from various Federal Reserve officials to gather more indications regarding the timeline for initiating interest rate cuts this year. Additionally, retail sales data is anticipated to provide further insights into inflation, following last week’s revelation of higher-than-anticipated Consumer Price Index (CPI) inflation in December.

Persistent inflation is projected to potentially postpone the Federal Reserve’s intentions to commence interest rate cuts. This perception contributed to some strength in the dollar, exerting downward pressure on oil prices as well.