Oil Prices Drop Amidst China Demand Concerns and Interest Rate Speculations

Oil prices experienced a decline over the week due to subdued demand from China, a factor compounded by ample supply in the market, as highlighted by the International Energy Agency.

On Friday, the West Texas Intermediate contract for April dropped by 92 cents, settling at $78.01 per barrel. Similarly, the Brent contract for May saw a decrease of 88 cents, closing at $82.08 per barrel.

For the week, both U.S. crude and the global benchmark suffered losses of 2.45% and 1.76%, respectively.

China’s crude oil imports dipped by approximately 5.7% to 10.8 million barrels per day during the initial two months of the year, down from 11.44 million barrels per day in December, according to S&P Global Commodity Insights.

John Kilduff, a founding partner at Again Capital, expressed concerns about the failure of the anticipated surge in Chinese demand to materialize, suggesting that without it, sustaining and further recovering prices, particularly to surpass the $80 mark for WTI, would be challenging.

Conversely, a senior official at the International Energy Agency stated to Reuters that the oil market is expected to remain adequately supplied throughout the year.

Market participants were also closely monitoring the latest nonfarm payroll data for February and Federal Reserve Board Chair Jerome Powell’s testimony before Congress. These events aimed to gauge the potential direction of interest rates and, consequently, oil demand.

In February, the U.S. added 275,000 jobs, exceeding the 198,000 anticipated by economists surveyed by Dow Jones. However, the unemployment rate rose to 3.9%.

During his testimony, Powell indicated to Congress that the central bank is nearing a decision to cut rates, emphasizing the need for confidence that inflation is steadily moving towards the target of 2%.

The prospect of lower interest rates typically serves to stimulate economic growth, thereby supporting crude oil demand. However, Kilduff remarked on the complex’s reaction to the interest rate outlook, characterizing it as “almost schizophrenic.” While lower rates are beneficial for demand, their implementation signals economic slack and signs of weakness, prompting caution among investors.