Oil prices declined for a second consecutive day on Monday, impacted by a stronger U.S. dollar and political uncertainty in the United States. This followed an attack on U.S. presidential candidate Donald Trump and ongoing concerns about the geopolitical situation in the Middle East.
Market Reactions
Brent crude futures dropped 55 cents, or 0.7%, to $84.48 a barrel by 0109 GMT after a previous decline of 37 cents on Friday. Similarly, U.S. West Texas Intermediate (WTI) crude fell 56 cents, or 0.7%, to $81.65 a barrel.
The strengthening dollar played a significant role in the oil price decline. Tony Sycamore, an analyst at IG Markets, commented, “The U.S. dollar is expected to benefit from the assassination attempt on former President Trump, as it increases the chances of his re-election.” A stronger dollar typically drives oil prices down because it makes dollar-denominated crude more expensive for buyers using other currencies.
Economic Indicators and Demand
The oil market’s performance last week saw Brent fall more than 1.7% and WTI futures slip by 1.1%. This decline was primarily driven by weak oil demand in China, the world’s largest importer, which overshadowed robust summer consumption in the U.S.
China’s crude oil imports fell 2.3% in the first half of this year to 11.05 million barrels per day. This decline is attributed to disappointing fuel demand and reduced production by independent refiners due to weak profit margins. Economic data expected from China on Monday is anticipated to show a slowdown in the second quarter, fueled by a prolonged property downturn and job insecurity, which may prompt further economic stimulus from Beijing.
Geopolitical Tensions
In the Middle East, efforts to negotiate a ceasefire in Gaza between Israel and Hamas stalled over the weekend after three days of talks. Despite the halt, a Hamas official indicated that the group has not withdrawn from discussions. Concurrently, an Israeli attack on Saturday targeting a Hamas military leader resulted in 90 fatalities, exacerbating the already volatile situation.
These geopolitical tensions have maintained a premium in oil prices due to the uncertainty they bring to the market.
Future Outlook
In the U.S., the active oil rig count, an early indicator of future output, fell by one to 478 last week, marking the lowest level since December 2021, according to energy services firm Baker Hughes. Despite this, the oil market remains broadly supported by supply cuts from OPEC+. Iraq’s oil ministry stated it will compensate for any overproduction since the beginning of 2024.
As the market navigates through these economic and political uncertainties, the interplay between demand fluctuations, geopolitical tensions, and currency strength will continue to shape oil prices in the coming weeks.