Oil closes lower due to expectations of lower demand and a stronger dollar

Oil futures contracts closed lower on Monday (14) in a session attentive to the perspectives of lower demand that the monthly report of the Organization of Petroleum Exporting Countries (OPEC) pointed out.

In addition, the possibility of greater monetary tightening by the Federal Reserve (Fed), which has as one of the consequences the strengthening of the dollar, pressures the commodity, since oil is quoted in the American currency.

WTI crude for December closed down 3.47% ($3.09) at $85.87 a barrel on the New York Mercantile Exchange (Nymex), while Brent for January 2023 fell 2.97 % ($2.85), at $93.14 a barrel, on the Intercontinental Exchange (ICE).

In the view of Edward Moya, an analyst at Oanda, energy traders await how supplies will be disrupted when the Russian oil price cap begins early next month.

Today’s oil price weakness was mainly attributed to a weakened near-term demand outlook from OPEC and nervousness that the Fed might still remain aggressive with raising interest rates, he says.

Capital Economics points out that OPEC left its out-of-group supply forecasts virtually unchanged, but downgraded its world demand forecasts for the second consecutive month, by 100,000 barrels of oil per day (bpd) this year and 200,000 bpd in 2023 with “economic challenges” in Europe.

Despite the downgrades, OPEC remains quite optimistic about world demand, especially for next year, assesses the consultancy. “We expect that oil consumption will not be as high, as we project that global GDP growth will be just 1.5% in 2023, compared to the OPEC forecast of 2.5%”, ponders the analysis.

Moya recalls that warmer weather across Europe has been good news for natural gas prices and this has removed some of the extra demand that was expected to come in the way of crude oil. Hot weather, however, is about to disappear and this could keep energy prices rising in the future, says the analyst.