Oil Prices Dip on Demand Concerns and Strong Dollar

Oil prices fell in early Asian trading on Friday, as concerns about future demand growth and a strengthening dollar weighed on the market, reports Reuters. Both Brent crude and West Texas Intermediate futures fell, putting global oil benchmarks on track to end the week down over 2%.

The decline was driven by concerns about oil demand growth in China, the world's largest crude importer. In its annual energy outlook, released on Thursday, Chinese state-owned refiner Sinopec indicated that China's oil imports could peak as early as 2025, with overall oil consumption peaking by 2027. This forecast, which anticipates weakening demand for diesel and gasoline, contributed to the bearish sentiment in the market.

Adding to the downward pressure, the dollar climbed to a two-year high following the Federal Reserve's cautious stance on future interest rate cuts. A stronger dollar makes oil more expensive for holders of other currencies, while the prospect of slower economic growth from a less aggressive Fed could further dampen oil demand.

J.P. Morgan forecasts a shift in the oil market from balance in 2024 to a surplus of 1.2 million barrels per day (bpd) in 2025. The bank anticipates non-OPEC+ production increasing by 1.8 million bpd in 2025, while OPEC output remains at current levels.

In a development that could potentially tighten supply, Bloomberg reports that G7 countries are considering ways to further tighten the price cap on Russian oil. This could involve an outright ban or lowering the price threshold. Russia has so far been able to circumvent the current $60 per barrel cap using a "shadow fleet" of ships, which the EU and Britain are targeting with new sanctions.