On Thursday, US benchmark West Texas Intermediate crude oil prices experienced a 2% decline, reaching a one-week low. The drop then continued on Friday morning. This drop can be attributed to several interconnected factors that impact supply and demand including inflation, Federal Reserve policy, the US debt ceiling, OPEC+ projections, and inventories.
US Debt Ceiling Standoff Raises Concerns of a Potential Recession
One significant factor contributing to the decline in oil prices is the political standoff over the US debt ceiling. This standoff has raised concerns about a potential recession in the world's largest oil consumer, as it creates uncertainties and dampens investor sentiment. Furthermore, rising US jobless claims and weak Chinese economic data have added to market anxieties, resulting in the lowest closing prices for the benchmark since May 4.
Strong US Dollar and Uncertainties Pose Obstacles for Oil Markets
The strong US Dollar is another factor affecting crude oil prices. A stronger dollar makes oil more expensive in other countries, reducing demand and putting downward pressure on prices. Moreover, uncertainties related to recent banking issues that could lead to a credit crunch across the oil industry, and the persistent possibility of a recession pose significant obstacles for the oil markets.
Federal Reserve's Pause on Interest Rate Hikes Impacts Oil Demand
The strengthening dollar data has supported the case for the Federal…