(TrendHub KR – Posts by ICARUS Journalist) Oil prices fell by about 2% on Friday following the release of strong U.S. jobs data, which diminished the likelihood of short-term interest rate cuts, thus marking both benchmarks for a weekly loss amid China’s economic uncertainties and ongoing geopolitical tensions.
Brent crude futures dropped $1.40, or 1.8%, to $77.30 a barrel by 1453 GMT, while U.S. West Texas Intermediate (WTI) crude futures decreased by $1.59, or approximately 2.2%, to $72.23.
The high interest rates in major economies such as the United States and the eurozone, which typically curb economic growth and oil demand, seem poised to persist in the near term.
Data revealed on Friday indicated that U.S. employers added significantly more jobs in January than anticipated, thereby reducing the chances of near-term Federal Reserve interest rate cuts. Consequently, the dollar surged against all major currencies.
Across the Atlantic, a policymaker from the European Central Bank also implied on Friday that it was premature to consider interest rate cuts in the region.
Meanwhile, concerns over China’s economic recovery remain, with the International Monetary Fund predicting that the country’s economic growth will slow to 4.6% in 2024 and further decline to about 3.5% by 2028.
The oil prices were already on a path to weekly losses following unconfirmed reports of a ceasefire between Israel and Hamas, leading to a more than 2% price drop on Thursday.
Mediators are currently waiting for a response from Hamas to a ceasefire proposal, which was drafted last week with the involvement of Israeli and U.S. spy chiefs and relayed by Egypt and Qatar, aiming for the war’s first extended ceasefire.
A cessation of hostilities could alleviate political risks over the shipping lanes in the Gulf and Red Sea, crucial for global energy flows.
On Thursday, sources from OPEC+ stated that the group had maintained its output policy unchanged and will decide in March on whether to extend the voluntary oil production cuts in place for the first quarter.
The Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, have implemented output cuts of 2.2 million barrels per day (bpd) for the first quarter, as announced last November.
“Last year made it clear that the reversal of those cuts would be gradual,” commented UBS analyst Giovanni Staunovo, who anticipates an extension into the second quarter.
Dual Insight Analysis
Positive Investment Perspective:
The decline in oil prices could present a stabilization opportunity for the energy market in the long term by easing cost pressures and allowing for a realignment of energy demand. Moreover, policymakers’ efforts to mitigate the impacts of interest rate hikes on the economy send important signals to investors, promoting a cautious approach to the energy sector.
Negative Investment Perspective:
However, the high interest rate environment combined with geopolitical uncertainties presents ongoing uncertainties for the oil market. A slowdown in China’s economy could weaken global energy demand outlooks, exerting long-term negative pressure on oil prices. Investors should develop more flexible strategies and maintain diversified portfolios to manage this volatility.
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