Oil Prices Decline due to Chinese Demand Concerns and Increased Supply Expectations

Oil prices fell on Friday after rising in the previous session, as geopolitical tensions and disruptions in US oil production due to a cold wave were met with concerns about slowing demand growth in China and expectations of increased supply.

Brent crude futures fell 23 cents, or 0.3%, to $78.87 per barrel.

US West Texas Intermediate futures also dropped seven cents to $74.01 per barrel. The benchmark crudes rose about 2% on Thursday, as the International Energy Agency joined OPEC in its expectations of strong global oil demand growth.

The two crudes were on track to finish the week up between one and two percent. Even though its figures are still lower than OPEC’s estimates, the International Energy Agency raised its expectations for global oil demand growth in 2024.

It stated that the market seems to be well-supplied due to strong growth in non-OPEC member countries. The agency expects global oil supplies to rise by 1.5 million barrels per day to a new level of 103.5 million barrels per day in 2024, driven by record production from the United States, Brazil, Guyana, and Canada.

Hiroki Kikukawa, head of Nissin Securities’ unit, I.S. Securities, said, “In addition to tensions in the Middle East, there are also concerns that the US-China conflict will attract attention again with the US elections approaching, which would have a negative impact on energy demand.”

He added, “Unless tensions in the Middle East escalate more quickly, US West Texas Intermediate crude is likely to continue trading in a range of $70 to $76.”

Data from consulting firm Fortesa shows that vessel traffic through the Bab el-Mandeb Strait declined by 58% from January 13 to 17, compared to the same period in 2023. The Houthis continued their attacks on US ships on Thursday, almost a week after the US and the UK launched strikes against their sites in Yemen.

Outside the Middle East, the US Energy Information Administration announced a larger-than-expected decline of 2.5 million barrels in crude oil inventories due to strong demand from refineries in the week ending January 12. However, gasoline inventories and distillate products reached their highest levels in several years.

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