Oil prices took a dip on Monday as investors started to consider the possibility of a short-term drop in demand. This comes ahead of a key inflation report from the U.S. that could result in the Federal Reserve tightening monetary policy, causing a slowdown in the economy and lowering demand for oil.
The U.S. Federal Reserve has been steadily increasing interest rates to control inflation, and these actions have raised concerns about how this will impact the economy and the demand for oil.
“Crude prices are softening as energy traders anticipate a potentially weakening crude demand outlook as a pivotal inflation report could force the Fed to tighten policy much more aggressively,” says Edward Moya, a senior analyst at OANDA.
Despite the dip in oil prices, supply concerns were relieved as a shipment of Azeri crude was sent from Turkey’s Ceyhan port on Monday. This was the first shipment since the devastating earthquake that hit the region on February 6th. Ceyhan is a crucial storage and loading point for pipelines that bring oil from Azerbaijan and Iraq.
Last week, Russia, the world’s third-largest oil producer, announced it would reduce crude production by 500,000 barrels per day in March, which was a contributing factor to the rise in oil prices. Both Brent and WTI crude futures saw more than an 8% increase due to the optimism surrounding the demand recovery in China after COVID restrictions were lifted in December.
In conclusion, while the oil prices are currently facing a dip due to inflation fears, factors like supply concerns and recovery in demand could lead to a rebound in prices.