Crude Oil Prices Falls Over Weak Demand Expectations

Nigeria’s Oil Sector Contribution to GDP

Amid doubts over the prospects for demand, crude oil prices trended lower on the global commodities market. Despite fresh US sanctions against Venezuela, the market price of crude oil is retreating. The closing price of the previous trading session, which was $87.29 a barrel, was 1.65% lower for the international benchmark Brent oil, which was trading at $85.85 per barrel.

At the same moment, the U.S. benchmark West Texas Intermediate (WTI) was trading at $80.75 a barrel, down 1.79% from the previous session’s closing price of $82.22 per barrel. Both benchmarks rose sharply on Friday as reports surfaced that Israel had launched a counterattack on Iran.

The Brent crude price approached the $91 threshold amid concerns that a wider conflict would disrupt oil supplies in the Middle East, home to the majority of the world’s oil reserves. However, later on Friday, crude prices clawed back most of the gains after both sides downplayed the severity of the attack. 

As concerns of a wider conflict eased despite unprecedented direct strikes by both sides, the oil market refocused on market fundamentals on the first day of the new week.

Demand concerns stemming from uncertainties regarding the global economy continue to weigh on prices. Weak demand worries were also sparked by the rise in crude oil stocks in the US, the largest oil consumer in the world.

While uncertainty regarding the timing of the Fed’s interest rate cuts continues, the dollar index reached 106. The rise in the value of the US dollar makes oil expensive for buyers using other currencies, leading to reduced purchases and downward pressure on prices.

Meanwhile, renewed US sanctions on Venezuela, which has an export capacity of around 600,000 barrels per day, fueled supply concerns. The OPEC+ group could influence oil prices by returning some of the 2 million bpd supply it is currently keeping off the market.

The tensions in the Middle East have highlighted the ebb and flow of the geopolitical risk premium in oil prices so far this month. Analysts believe that oil currently includes between $5 and $10 per barrel in premium to reflect a risk of escalation in the Israel-Iran conflict.

The past week has illustrated how traders perceive geopolitical risk. Just as Brent Crude prices had eased to the upper $80s after the Iranian drone attack against Israel in the April 13-14 weekend, oil spiked by 3% early on April 19 amid reports of an Israeli missile hit in Iran. 

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