Oil prices fell for a second consecutive day as traders grappled with concerns over a slower pace of Federal Reserve rate cuts in 2025 and heightened geopolitical risks, including President-elect Donald Trump's threat to impose tariffs on the European Union. Brent crude dropped near $72 a barrel on Friday, with U.S. West Texas Intermediate (WTI) crude trading at $68.62, marking a weekly decline of more than 3%.
A stronger U.S. dollar, bolstered by the Federal Reserve's cautious economic outlook, has further pressured oil prices. "The combination of higher interest rates, a stronger dollar, and weak risk appetite is weighing on oil prices," said Arne Lohmann Rasmussen, chief analyst at A/S Global Risk Management. The Fed's projection of fewer rate cuts has dampened expectations of robust economic growth, raising concerns over global oil demand.
Adding to market anxiety, President-elect Trump warned the EU to increase purchases of U.S. oil and gas or face potential tariffs. Trump's comments, posted on Truth Social, come as Washington faces its own economic uncertainty with the looming threat of a government shutdown.
Demand concerns have also been fueled by reports from China's state-owned refiner, Sinopec, which projected that China's crude imports could peak by 2025, with overall oil consumption expected to plateau by 2027 due to weakening demand for diesel and gasoline. China, the world's largest crude importer, plays a pivotal role in global oil demand, and signs of a potential slowdown have rattled markets.
"Benchmark crude prices are in a prolonged consolidation phase as the market heads towards the year-end weighed by uncertainty in oil demand growth," said Emril Jamil, senior research specialist at LSEG. He added that OPEC+ may need to exercise supply discipline to stabilize prices amid continuous downward revisions of demand growth forecasts.
OPEC+ has already lowered its 2024 global oil demand growth forecast for the fifth consecutive month, underscoring the challenges facing the oil market. Meanwhile, JPMorgan predicts the oil market will shift from balance in 2024 to a surplus of 1.2 million barrels per day in 2025, driven by a forecasted 1.8 million bpd increase in non-OPEC+ supply.
The dollar's strength has compounded these pressures, as a rising dollar makes oil more expensive for holders of other currencies. The Fed's stance on interest rates further dampened sentiment, with traders anticipating that a slower pace of cuts could curb economic activity and reduce oil demand.
Geopolitical risks also remain at the forefront. Group of Seven (G7) nations are exploring ways to tighten sanctions on Russian oil, including lowering the current price cap from $60 per barrel or implementing an outright ban, according to Bloomberg. Russia has managed to circumvent existing restrictions through a so-called "shadow fleet" of tankers, prompting the EU and Britain to impose new sanctions targeting these vessels.
