Citi Experts Predict Softening Oil Market Amid Economic Concerns

Oil prices took a dip on Thursday as worries about reduced demand surfaced following disappointing US economic data. Brent crude futures slipped by 0.69 percent to $86.74 per barrel, while US West Texas Intermediate crude futures fell by 0.75 percent to $83.25. The market mood was impacted by the US Independence Day holiday, leading to a decrease in trading activity.

Experts from Citi pointed out that while factors like geopolitical tensions and weather conditions could drive prices up, the physical oil market is expected to soften. This change is linked to the upcoming post-summer September cargoes, which might see a drop in demand due to potential hurricane risks. In June, US crude shipments to Europe hit a two-year low as European buyers chose cheaper regional and West African oil. Nevertheless, a slight increase in volumes is anticipated for July and August.

The drop in oil prices can also be attributed to traders taking profits after recent price hikes. Despite this, oil futures in both the US and Europe are set for a fourth consecutive weekly gain. The decline in prices was further influenced by weaker US economic indicators, such as a rise in initial unemployment claims and a fall in the ISM Non-Manufacturing index to a four-year low in June.

The US Federal Reserve might contemplate reducing interest rates in response to the subdued economic data, a move that could boost oil markets by stimulating demand. Market expectations for a rate cut in September have climbed to 74 percent, with a projected easing of 47 basis points for the year. A potential lower interest rate environment in the US could weaken the dollar in the short term, supporting a positive outlook for WTI crude.

Moreover, the Energy Information Administration reported a larger-than-expected decline in US crude and fuel stockpiles last week, adding to the market dynamics influencing oil prices.

As oil prices fluctuate due to a mix of global factors, including economic data, geopolitical tensions, and market dynamics, it remains crucial for investors and consumers to stay informed about the latest developments. Understanding the intricate balance between supply, demand, and external influences is key to navigating the volatile oil market.