Why oil prices are not soaring despite Middle East tensions

New York, US – When Russia invaded Ukraine in 2022, the price of oil jumped to over $100 a barrel. But despite the threat of an escalation of tensions in the Middle East and attacks on Red Sea shipping, oil markets have yet to see such moves this time around.

Oil prices spiked last month following Us-led strikes on Houthi targets in Yemen in response to repeated attacks on commercial ships in the Red Sea. Crude prices have been volatile as Wall Street assesses the path for interest rates, the US dollar and geopolitical strife.

Still, oil prices remain well off their 2022 highs. West Texas Intermediate (WTI) crude futures, the US benchmark for oil, settled at $77.59 a barrel on Friday, while international benchmark Brent crude futures settled at $82.86 a barrel.

According to a CNN analysis report, one factor that could be keeping the cap on oil prices is waning demand. A new monthly report from the International Energy Agency released Thursday forecasts that growth in global demand will slow to 1.2mn barrels per day in 2024 from 2.3mn bpd in 2023. That comes after demand growth fell to 1.8mn bpd during the fourth quarter of 2023 from 2.8mn bpd the prior quarter.

“Global oil demand growth is losing momentum,” IEA said in its February report as reported by CNN. “The expansive postpandemic growth phase in global oil demand has largely run its course.”

For some economies, however, that period of growth was lackluster. China’s economy was supposed to have a blockbuster recovery in 2023 after shuttering during the Covid pandemic. Instead, a property crisis, weak spending and high youth unemployment have caused it to stall out, and some economists believe the country could face decades of stagnation.

Other nations are facing economic downturns. The United Kingdom has entered recession after the country’s gross domestic product fell 0.3% during the final quarter of 2023, following a 0.1% decline in the prior quarter. A recession is commonly defined as two back-to-back quarters of GDP contraction but can also be characterized by other factors like high unemployment.

Japan also fell into recession unexpectedly after weak domestic consumption caused its GDP to fall for a second consecutive quarter. That was enough for Japan to lose its spot as the thirdlargest economy in the world, falling behind Germany.

While the US economy has stayed strong through the Federal Reserve’s punishing pace of rate hikes, some investors and economists warn that it could slip into recession later this year as Americans get squeezed by high rates and their pandemic savings dwindle.

While global oil demand growth is slowing, supply has stayed relatively strong, potentially putting further downward pressure on oil prices. The US was expected to have produced 13.3mn bpd of crude and condensate in the fourth quarter of 2023, more than any country in history, as per the CNN report.

In addition, some key OPEC+ countries produced more oil in January than their targeted output. Iraq pumped 230,000 more barrels and the United Arab Emirates produced 300,000 more barrels, according to the IEA report.

One factor that could be keeping the cap on oil prices is waning demand. The IEA forecasts that growth in global demand will slow to 1.2mn barrels per day in 2024 from 2.3mn in 2023