Oil prices slide further as oversupply and demand concerns grow

Crude oil prices were in the red on Monday as oversupply concerns and poor demand outlook continued to weigh on sentiments. 

Oil prices had fallen last week when the Federal Reserve signalled fewer interest rate cuts in 2025 than previously anticipated. 

Higher rates reduce liquidity in an economy, leaving less money with industries, thereby curtailing demand for oil. 

The oil market witnessed a third straight session of decline as the strengthening dollar weighs on the complex.

A stronger dollar makes commodities such as oil more expensive for overseas buyers. 

At the time of writing, the price of West Texas Intermediate crude oil was at $69.39 per barrel, down 0.1% from the previous close.

Brent crude oil on the Intercontinental Exchange was at $72.45 per barrel, down 0.2%. 

PCE data provides some relief

On Friday, oil prices had climbed for a brief period after the personal consumption expenditure index in the US came in softer than expected. 

The core personal consumption expenditure index, which excludes volatile food and energy prices, rose 2.8% in November, below the expectation of 2.9%. 

Furthermore, personal income decelerated sharply from 0.7% in October and grew 0.3% last month.

The annual PCE index rose to 2.4% in November compared with estimates of 2.5%. The index rose by 0.1% in November, slightly lower than the October’s increase of 0.2%. 

This provided some relief as softer inflation could prompt the Fed to change its projection and cut interest rates more next year.

Dollar surges

The optimism over the oil market due to softer inflation data in the US did not last long as a stronger dollar weighed on sentiments. 

The dollar surged to a two-year high on Friday, and was near that level on Monday morning. 

The dollar had been rising since last week after the US Fed signalled further caution over monetary easing. 

“The Federal Reserve’s cautious stance on further monetary easing, combined with Sinopec’s projections of peak Chinese oil demand by 2027, weighed heavily on sentiment,” James Hyerczyk, technical analyst at FXempire, said in a report. 

Rig counts and supply outlook

Amid a rise in oil production from countries outside the Organization of the Petroleum Exporting Countries alliance, the forecast that China’s oil demand may peak by 2027 hit sentiments. 

Meanwhile, rigs drilling for oil in the US remained steady for the second consecutive week, according to Baker Hughes’ latest report last week. 

The total rig count remained at 589, with oil rigs rising by one to 483—the highest since September—while gas rigs dipped by one to 102. 

Hyerczyk said:

Crude oil production is projected to rise from 12.9 million barrels per day in 2023 to 13.2 million barrels per day in 2024, with further growth to 13.5 million bpd expected in 2025, according to the US Energy Information Administration. 

The International Energy Agency forecasts that supply from non-OPEC countries is expected to rise by 1.9 million barrels per day in 2024, comfortably outstripping demand growth. 

Forecast

The oil market is expected to present a neutral to slightly bearish outlook in the near-term, according to Hyerczyk. 

However, a stronger dollar adds to the downward pressure. 

Traders should watch out for a potential break below $68.69, which could lead to further downside. 

But, Hyerczyk said any sustained breach above $71.10 may pave the way for renewed bullish momentum.