Oil down as economic headwinds weigh on demand outlook

Oil prices lost more ground on Monday as economic headwinds pressured the global oil demand outlook and offset geopolitical concerns in the Middle East and an attack on a Russian fuel export terminal over the weekend.

Brent crude fell 23 cents, or 0.3 per cent, to $78.33 a barrel by 0732 GMT after settling down 54 cents on Friday.

The front-month US West Texas Intermediate crude futures, for February delivery, were down 28 cents to $73.13 a barrel with the contract set to expire later on Monday. The more active March WTI contract was at $73.04 a barrel, down 21 cents.

“This morning’s subdued re-open speaks volumes about current sentiment in the crude oil market despite ongoing geopolitical tensions in Europe and the Middle East,” IG analyst Tony Sycamore said.

Prices barely budged despite an alleged Ukrainian drone attack at a huge Russian fuel export terminal.

Russian producer Novatek (NVTK.MM), opens new tab said on Sunday it had been forced to suspend some operations at the Baltic Sea terminal because of a fire.

In the absence any major escalation, crude is set for rangebound trading, with some downward pressure, said Vandana Hari, founder of oil market analysis provider Vanda Insights.

In the Middle East, the Gaza war rages on while the US struck another anti-ship missile preparing to launch into the Gulf of Aden by Yemen’s Houthi militants on Saturday.

The attacks by the Iran-aligned group in the Red Sea and the Gulf of Aden have disrupted global trade. It has also tightened European and African crude markets and pushed the premium of the first-month Brent contract to the six-month contract to $1.99 on Friday, the widest since November.

This structure, called backwardation, indicates a perception of tighter supply for prompt delivery.

IG’s Sycamore said oil fundamentals remain a headwind for prices.

Oil “production is higher and the growth outlook in China and Europe is mixed at best, while GDP data this week is expected to show the velocity of the US economy has slowed considerably,” he added.

The latest demand growth forecasts by the US Energy Information Administration, the International Energy Agency and the Organization of the Petroleum Exporting Countries for 2024 are in a wide range between 1.24 million and 2.25 million barrels per day although all the three organizations expect demand to decelerate in 2025.

The number of oil rigs operating in the US fell by two to 497 last week, their lowest since mid-November, Baker Hughes data showed on Friday.

Separately, production at Libya’s Sharara oilfield restarted on Sunday, state oil company NOC said, after protesters ended a sit-in that had halted output since early January.