Oil prices faced downward pressure on Monday, retreating from multi-week highs, as weaker-than-expected consumer spending in China, the world’s largest oil importer, dampened demand prospects. Investors also took a cautious pause ahead of the U.S. Federal Reserve’s pivotal interest rate decision, contributing to the market’s pullback.
Brent crude futures ended the day at $73.91 a barrel, down 58 cents, or 0.8%. This marked a slight decline after the previous session, where prices had reached their highest closing level since November 22. Similarly, U.S. West Texas Intermediate (WTI) crude closed at $70.71 a barrel, also falling by 58 cents, or 0.8%, following a peak last week, which had marked the highest level since November 7.
Oil prices had gained momentum in recent weeks on expectations that global supply would tighten, particularly after additional sanctions on key oil producers such as Russia and Iran. Furthermore, markets were hopeful that lower interest rates in the U.S. and Europe could stimulate demand. However, the situation shifted this week, as investors recalibrated expectations.
Jim Ritterbusch of Ritterbusch and Associates in Florida noted that while last week’s events may have already been priced into the market, this week holds fewer catalysts for supporting oil prices. Traders, therefore, seem to be taking a more conservative approach, awaiting fresh economic signals.
One significant factor pressuring oil prices is the sluggish retail sales data out of China. Retail sales growth in the world’s largest oil importer came in below expectations, reinforcing concerns about the fragility of the Chinese economy, which continues to grapple with U.S. trade tariffs. Analysts worry that without stronger consumer demand, China’s economy may remain stagnant, limiting its ability to boost oil consumption.
“This is a very bearish scenario where there is little hope for significant demand growth for crude oil,” said Bob Yawger, director of energy futures at Mizuho in New York. This grim outlook contributed to OPEC+’s decision to delay its planned output increases until April, which further weighed on oil prices.
John Evans, an analyst at oil broker PVM, emphasized that despite efforts to stimulate the economy, consumer spending in China has remained tepid. “Without a major shift in consumer behavior, China’s economic outlook for oil consumption will remain subdued,” Evans said.
The pause in oil buying also reflected investor caution ahead of the U.S. Federal Reserve’s decision on interest rates this week. IG market analyst Tony Sycamore highlighted that light profit-taking was expected following the 6% price increase seen last week, particularly as banks and funds likely closed their positions heading into the holiday season.
The Fed is anticipated to announce a 25 basis point rate cut during its December 17-18 meeting. This could provide some relief for oil prices, as lower interest rates tend to stimulate economic growth and, by extension, increase oil demand. However, the markets are also bracing for updated projections on how much further the Fed plans to reduce rates through 2025 and potentially into 2026. Such insights could have a lasting impact on oil demand expectations.
In addition, the U.S. dollar briefly hovered near a three-week high against other major currencies, putting additional pressure on oil prices. Since oil and the dollar tend to trade inversely, the dollar’s strength makes crude oil more expensive for holders of other currencies, thus dampening demand.
Investors are also eagerly awaiting U.S. oil inventory reports scheduled for release this week. Preliminary data from a Reuters poll suggests that crude oil and distillate inventories likely fell by about 1.9 million barrels for the week ending December 13. Meanwhile, gasoline stocks are expected to have risen, according to the same poll.
These reports, which will come from the American Petroleum Institute (API) on Tuesday afternoon and the Energy Information Administration (EIA) on Wednesday, could offer valuable clues on the direction of oil prices, particularly if they show unexpected shifts in supply or demand.
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