Oil prices edge lower as demand concerns persist, more economic cues awaited

Investing.com-- Oil prices fell in Asian trade on Monday, reversing some of last week’s gains amid persistent concerns that crude demand will slow in the coming months, while anticipation of several key economic events also kept markets on edge.

Severe cold weather across the U.S. caused more disruptions and also limited travel in large parts of the country, pointing to weaker demand in the world’s largest fuel consumer. This notion was also exacerbated by a string of weekly builds in U.S. oil product inventories.

Concerns over a near-term slowdown in demand have stymied any major gains in oil prices this year, with signs of a sluggish economic recovery in China being a major point of contention. The world’s largest oil importer saw underwhelming growth in the fourth quarter.

Demand fears saw traders largely look past potential disruptions in Russian fuel exports. Energy firm Novatek said it had suspended some operations at a major Baltic Sea fuel export terminal after an alleged Ukrainian drone attack, Reuters reported.

Brent oil futures expiring in March fell 0.5% to $78.21 a barrel, while West Texas Intermediate crude futures fell 0.3% to $73.04 a barrel by 20:10 ET (01:10 GMT).

While both contracts clocked mild gains last week, they were largely muted so far in 2024 after falling over 10% each in 2023.

Crude prices had taken little support from fears of supply disruptions in the Middle East, even as the Israel-Hamas war escalated and appeared to be spilling over into other parts of the region. But the conflict had so far had no tangible impact on oil supplies from the region.

Oil markets are expected to remain well-supplied in the first half of 2024, amid record-high U.S. output and limited production cuts from the Organization of Petroleum Exporting Countries.

Central banks, key economic readings awaited

Traders were now waiting on several major central bank meetings and economic readings over the coming weeks for more cues.

The Bank of Japan is set to meet on Tuesday and is widely expected to maintain its ultra-dovish policy. But analysts warned of any potential hawkish surprises from the BOJ, especially any changes to its yield curve control policies.

The European Central Bank is set to meet later this week and is likely to reiterate its higher-for-longer outlook for interest rates, which bodes poorly for economic activity in the bloc. The euro zone is already grappling with a recession in its biggest economies, amid dwindling economic growth.

Fourth-quarter U.S. gross domestic product data is also on tap later this week, and will be closely watched for cues on the world’s largest fuel consumer.

Strength in the U.S. economy gives the Federal Reserve more headroom to keep interest rates higher for longer- a scenario that is expected to weigh on economic activity and oil demand in 2024.

The Federal Reserve is set to meet next week, and is expected to keep interest rates on hold.

Upgrade your investing with our groundbreaking, AI-powered InvestingPro+ stock picks. Use coupon INVSPRO2024 to avail a limited time discount on our Pro and Pro+ subscription plans. Click here to know more, and don't forget to use the discount code when checking out!