West Texas Intermediate (WTI) oil prices extended their losing streak for the fifth consecutive session, trading around $68.90 per barrel during the Asian trading hours on Friday. Crude oil, priced in US dollars, is on track for a weekly decline, primarily driven by a stronger US Dollar (USD). A rising USD makes oil more expensive for buyers using other currencies, leading to a decrease in global oil demand.
The US Dollar Index (DXY), which tracks the dollar against six major currencies, reached 108.50, its highest level since November 2022, after the Federal Reserve implemented a hawkish 25 basis point rate cut on Wednesday. The Fed’s latest Summary of Economic Projections, or ‘dot plot,’ revealed a reduction in the number of expected rate cuts for 2025, with just two cuts anticipated, down from the four cuts previously projected in September.
Fed Chair Jerome Powell signaled caution on further rate cuts, citing persistent inflationary pressures above the central bank’s 2% target. Meanwhile, other central banks, such as the Bank of Japan (BoJ), maintained ultra-low interest rates, with concerns growing over trade tensions, particularly with the US. The Bank of England (BoE) also kept rates unchanged amid a divided outlook on the UK’s economic slowdown.
In the oil market, analysts at J.P. Morgan have projected that oil supply will surpass demand by 1.2 million barrels per day in the near future. This expected surplus, coupled with weakening economic activity and a slowing Chinese economy, is expected to put further pressure on crude oil prices.
Additionally, the transition towards alternative energy sources in China is dampening oil demand. State-owned Sinopec recently announced that China’s gasoline consumption is expected to peak by 2027, as both diesel and gasoline demand continue to weaken in the world’s largest oil importer.
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