Oil Prices Forecast: Will Surging US Dollar Continue to Weigh on Crude?

James Hyerczyk
Updated: Feb 4, 2024, 03:30 UTC

Look for crude oil's bearish trend to continue based on Fed rate cut speculations, Middle East peace, OPEC+ output, and China's slowdown.

Oil Prices Forecast

In this article:

Key Points

  • Bearish trend in oil market likely to persist.
  • Speculation on Fed rate cuts influencing prices.
  • Concerns about China’s slowdown could offset OPEC+ output decision effects.

U.S. Economic Indicators and Oil Prices

Oil prices experienced a significant decline last week, with Light Crude Oil Futures closing at $72.28, marking a 7.35% decrease. This downward trend was influenced by U.S. economic data that suggested a lower likelihood of imminent interest rate cuts by the Federal Reserve.

Weekly Light Crude Oil Futures

The robust job creation figures in the U.S. have led to a strengthened dollar, which in turn impacts global crude demand. The implication is that high interest rates, which can suppress economic growth and, consequently, oil demand, seem likely to persist in major economies, including the U.S. and the euro zone.

Middle East Tensions and OPEC+ Decisions

The oil market also reacted to geopolitical developments. Reports of a potential ceasefire between Israel and Hamas temporarily alleviated some geopolitical risk in critical shipping lanes, contributing to the decrease in oil prices.

Meanwhile, OPEC+, which includes the Organization of the Petroleum Exporting Countries and allies like Russia, maintained its current output policy. The group’s decision regarding the extension of its first-quarter voluntary production cuts will be a critical factor to monitor in the coming weeks.

Supply-side factors also played a role in last week’s oil market movements. The outage at BP’s Whiting refinery in Indiana, due to a power loss, disrupted operations and led to uncertainties about oil supply distribution.

In contrast, the U.S. oil rig count remained stable, indicating a steady future supply outlook. Additionally, there was a notable increase in oil futures and options positions by money managers, highlighting investor sentiment in the oil market.

China’s Economic Outlook

Concerns about China’s economic recovery continued to exert pressure on the oil market. The International Monetary Fund’s forecast of a slowdown in China’s economic growth to 4.6% in 2024, with further deceleration in the medium term, raises questions about future oil demand in one of the world’s largest economies. This aspect remains a significant factor in shaping global oil market trends.

Weekly Forecast

In the upcoming week, the oil market is poised for a bearish trend, influenced by several key factors.

Strong U.S. economic data reduces the likelihood of near-term interest rate cuts, potentially dampening global oil demand amidst a stronger dollar.

Geopolitical stability in the Middle East, particularly regarding Israel and Hamas, could lower risk premiums in oil prices.

OPEC+’s decision to maintain current output levels and China’s economic slowdown, as forecasted by the IMF, are expected to further suppress demand.

Additionally, the stabilized supply situation, exemplified by the quick recovery at BP’s Whiting refinery and a steady U.S. oil rig count, suggests adequate supply, contributing to the downward pressure on oil prices.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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