Oil prices continued their downward trajectory for the second consecutive session on Tuesday. This decline is attributed to technical corrections following last week’s gains, compounded by forecasts of ample supply and the impact of a robust U.S. dollar.
By 0148 GMT, Brent crude futures experienced a dip of 28 cents, or 0.37%, trading at $76.02 per barrel. Concurrently, U.S. West Texas Intermediate (WTI) crude saw a decrease of 33 cents, or 0.45%, settling at $73.23 per barrel. This pullback follows a significant rally last week where both benchmarks posted five consecutive days of gains, reaching their highest levels since October.
The recent rally was driven in part by market optimism surrounding potential fiscal stimulus in China, aimed at revitalizing its slowing economy. However, the subsequent correction reflects broader market sentiment adjusting to mixed economic signals globally.
Priyanka Sachdeva, a senior market analyst at Phillip Nova, attributed the current weakness to technical corrections and softer economic data emerging from major economies such as the U.S. and Germany. “This week’s weakness is likely due to a technical correction, as traders react to softer economic data globally that undermines the optimism seen earlier,” Sachdeva explained.
Furthermore, Sachdeva highlighted the influence of a strengthening dollar, which has been a headwind for oil prices. “The dollar’s strength is catching up with market sentiment and appears to be trimming the current gains in oil prices,” she added.
The U.S. dollar, although wavering, remains near the two-year peak it achieved last week. This resilience in the dollar is underpinned by uncertainty surrounding potential tariffs from the incoming Trump administration. A stronger dollar typically renders oil more expensive for holders of other currencies, thus exerting downward pressure on oil prices.
The oil market’s outlook is further influenced by the dynamics of supply and demand. Analysts predict that rising demand from non-OPEC countries, juxtaposed with weaker demand from China, will likely keep the market well-supplied in the upcoming year. This forecast has played a significant role in limiting price gains.
ING analysts, in their latest note, emphasized the market’s current state, indicating that the recent upward movement in crude oil prices is losing momentum. “While there has been some tightening in the physical market, fundamentals through 2025 are still set to be comfortable, which should cap the upside,” the analysts stated.
The market’s reaction is not occurring in a vacuum but is influenced by broader economic signals. The global economy is currently grappling with mixed data. For instance, the U.S. recently released figures indicating a slowdown in economic activity, which has tempered the market’s optimism.
In Germany, similar concerns are surfacing, as the country navigates its economic challenges. These developments contribute to a cautious sentiment among traders and investors, influencing commodity markets, including oil.
Last week’s rally was partially fueled by hopes of fiscal stimulus in China, aimed at stimulating its sluggish economy. China, being one of the world’s largest oil consumers, plays a pivotal role in the global oil market. Any measures to boost its economy are closely watched by market participants as they can significantly impact global oil demand.
However, despite these hopes, the projected weak demand from China, juxtaposed with robust supply from non-OPEC countries, suggests a balanced market moving forward. This balance, while preventing sharp declines, also acts as a ceiling to potential price hikes.
The concept of a technical correction is pivotal in understanding the recent price movements. Technical corrections occur when prices retrace from their recent highs due to overbought conditions, even in the absence of significant fundamental changes. These corrections are normal in financial markets and often follow strong rallies.
Sachdeva’s insights into the technical aspects of the market underscore the temporary nature of these corrections. However, they also highlight the sensitivity of oil prices to broader economic indicators and market sentiment.
