Singapore: Oil prices fell as investor attention returned to the demand outlook after reports of higher producer prices in the U.S., the world’s biggest oil user, stoked worries that sticky inflation and higher interest rates would limit fuel consumption growth.
U.S. producer prices increased more than expected in January amid strong gains in the costs of services, which could amplify inflation worries, reports Reuters.
Markets are also yet to see the direction of demand from China after it returns from a week-long Lunar New Year holiday, while Presidents’ Day in the United States is set to keep trade relatively muted.
Moreover, Federal Reserve policymakers on Friday signalled “patience” toward interest rate cuts. Higher rates keep up the cost of buying oil, providing for a bearish market trend.
Over the weekend, tension in the Middle East continued as Israeli raids put the Gaza Strip’s second-largest hospital out of service, and Yemen’s Iran-aligned Houthi fighters claimed responsibility for an attack on an India-bound oil tanker.
The Organization of the Petroleum Exporting Countries (OPEC) would be able to cover “most levels of disruption”, ANZ Research analysts said in a client note, as its spare capacity is at an eight-year high of 6.4 million barrels of oil per day.
“The market was also reminded of the uncertain outlook for demand, with the International Energy Agency warning that growth is expected to lose its steam in 2024,” ANZ said. The agency forecasts a market surplus during the year.
