Oil Prices Rally Amid Dollar Weakness and Economic Concerns

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Oil Prices Rally Amid Dollar Weakness and Economic Concerns

Oil prices surged on Thursday, driven by a weakened dollar subsequent to disappointing U.S. retail sales figures, fostering expectations of potential Federal Reserve interest rate reductions. Nevertheless, the market’s optimism was tempered by apprehensions surrounding a slowdown in global oil demand and an uptick in supply.

Brent crude futures concluded 1.5% higher at $82.87 per barrel, with West Texas Intermediate (WTI) also rising 1.8% to $77.83. This upward trend ensued following a dollar depreciation subsequent to U.S. retail sales falling short of expectations, dropping by 0.8% in January compared to the forecasted 0.2% decline. A weaker dollar typically renders oil more affordable for buyers using alternative currencies, thus exerting upward pressure on prices.

However, the International Energy Agency (IEA) revised its 2024 oil demand growth projection, downgrading it from 1.24 million barrels per day (bpd) to 1.22 million bpd due to concerns regarding decelerating economic activity. Furthermore, the IEA anticipates a surge in oil supply by 1.7 million bpd this year, surpassing its earlier forecast of 1.5 million bpd.

Heightening market uncertainties, the revelation of two major economies slipping into recession—Japan and Britain, respectively the fourth and sixth largest economies globally—during the latter part of 2023, weighed on prices. This development raises apprehensions regarding potential future declines in oil demand.

The oil market currently embodies a tug-of-war between bullish indicators, such as a weakened dollar, and bearish factors, including dwindling demand forecasts and burgeoning supply. The eventual victor in this contest over the coming weeks and months remains uncertain. Thus far, Brent prices have persistently tested their 100-day moving average throughout the week yet have failed to confirm a bullish breakout. Overall trends depict a sideways movement with resistance at $85, untraded since November 7, and support at $73, last observed on December 13, both in the previous year. Despite this, Brent has maintained levels above $80 throughout the week, a significant technical threshold. The Relative Strength Index (RSI) remains within a neutral range.

Please note that this analysis is provided for informational purposes only and should not be considered as investment advice.