Following losses from the previous session, oil prices faced a decline on Monday as the US dollar strengthened.
Concerns gripped the market that higher-than-expected inflation could trigger a delay in cutting high US interest rates, impacting global fuel demand growth.
Brent crude futures fell 0.4 percent and were down 35 cents at $81.27 a barrel by 04:19 GMT.
Similarly, West Texas Intermediate (WTI) crude futures were down 0.5 percent, down 35 cents at $76.14 a barrel, weighed down by a stronger U.S. dollar. A stronger dollar makes oil more expensive for holders of other currencies.
The drop follows last week’s losses, with Brent down around 2% and WTI down more than 3%.
The declines were prompted by indications that a US interest rate cut could be delayed by two months due to a sharp rise in inflation.
The recent retreat in risk-on sentiment following a market rally led by Nvidia last week was driven by heightened expectations of higher interest rates. This in turn lifted the US dollar and put pressure on commodity prices, including oil.
Since November, oil prices have hovered between $70 and $90 per barrel.
This volatility is attributed to a combination of factors such as increased US supply and concerns about weakened demand in China, which are counteracting the impact of OPEC+ supply cuts amid ongoing conflicts.
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Analysts suggest that the drop in oil prices is due to a lack of new drivers. The market is torn between optimistic factors such as reduced OPEC production and heightened geopolitical risks, and pessimistic concerns about subdued demand in China.
The geopolitical risk premium from Yemeni Houthi attacks on ships in the Red Sea remains relatively modest, giving Brent just $2 a barrel, analysts at Goldman Sachs noted.
Despite this, the bank revised its summer peak price to $87 a barrel, up from $85, citing disruptions in the Red Sea that led to bigger-than-expected draws on stocks held by OECD countries.
Goldman Sachs maintains its expectation that oil demand will grow by 1.5 million barrels per day (bpd) in 2024. However, it revised China’s forecast downwards and raised those for the US and India.
In the US, analysts expect a potential drop in oil inventories in the coming weeks as refiners return from maintenance, which will give some support to prices.
A delicate balance between various factors continues to shape the outlook for oil prices in the near term.
