Global oil markets likely to witness price drop – Noor Capital
Factors That Could Lead to Further Decline in Oil Prices
Several factors have emerged in global oil markets that may contribute to a price drop shortly. Most of these are linked to imbalances in supply and demand, while some are related to political and economic developments in the United States and major economies.
Oil prices have struggled since the beginning of the week as the negative effects of Hurricane Rafael on U.S. oil production have started to diminish. This has reduced the likelihood of production disruptions and lower supply, allowing output to return to normal levels, which impacts prices.
The hurricane affected many regions where oil and natural gas production thrives in the U.S. Oil production in the Gulf of Mexico dropped by around 16% last week, leading to a supply shortage and a rise in global prices. Oil production fell by 482,790 barrels, and natural gas production declined by 310 million m3 as of last Sunday, according to the U.S. Bureau of Safety and Environmental Enforcement.
U.S. Inventories
Last year’s price increase, exceeding $90 per barrel, helped decrease U.S. commercial crude oil inventories by about 53 million barrels from June to September 2023. Despite low demand forecasts and speculation that the Trump administration might soon adopt policies to increase supply, prices largely ignored these factors. Recent U.S. commercial oil inventories dropped to 415 million barrels, the lowest in several years, contributing to the rise in U.S. crude.
Global oil prices surged past $124 per barrel during Russia’s invasion of Ukraine. However, as U.S. oil inventories increased to 467 million barrels in June last year, prices fell to $67. Subsequently, declining inventories pushed prices above $90 once again.
Strength of the U.S. Dollar
Oil prices are also affected by the continued rise of the U.S. dollar, as higher dollar values usually cause all commodities priced in the currency to decline, a well-known correlation in financial markets. These factors collectively led to a negative close for U.S. oil futures on Tuesday, with a drop of around 2.75%.
The U.S. dollar closed Tuesday on a rising trend in the absence of influential economic data during U.S. trading, allowing other factors to take control of market movement. The Dollar Index, which tracks the dollar’s performance against a basket of major currencies, rose to 105.96 from the previous close of 105.54. The index hit a low of 105.49 and a high of 105.99 during Tuesday’s trading.
The U.S. dollar has continued to strengthen since the recent election of Donald Trump as the U.S. president in 2024, with financial markets celebrating his return to the White House. Although Trump has spoken against excessive dollar appreciation, he has not specified any measures he intends to take to weaken the dollar, leaving room for further increases.
Chinese Stimulus
There are signals of dissatisfaction among oil bulls concerning the scale of China’s stimulus package, as many are concerned that it may not be sufficient to have the desired positive impact on the world’s second-largest economy. There is a strong connection between oil demand and growth rates, as countries need to produce more to achieve growth, which naturally requires more oil consumption, driving up demand.
Trump’s Impact
The newly elected president of the United States is expected to adopt policies that support fossil fuel production in the U.S. and encourage more oil and natural gas extraction in the coming period. This would positively impact production levels but negatively affect prices. Trump’s victory has led to speculation that he might repeal recent clean energy legislation enacted under the Biden administration, potentially canceling billions of dollars in incentives for renewable energy use. Additionally, it is expected that the U.S. Treasury Department may review current policies that offer companies tax breaks worth billions for using clean energy, such as green hydrogen.
Last Updated on 4 weeks by News Desk 1
