Oil prices experienced a decline on Monday as investors took advantage of the opportunity to take profit after both benchmarks closed 6% higher last week on Middle East tensions. In addition, refining outages have impacted the refined products markets, contributing to the price drop. Brent crude futures fell 1.1% to $81.30 a barrel, while U.S. West Texas Intermediate crude futures slipped 1.1% to $76.01 a barrel.
The rally last week was due to the persistent threats to shipping in the Red Sea, Ukrainian strikes on Russian refineries, and U.S. refinery maintenance. Tamas Varga of oil broker PVM stated that these factors have led to a scarcity of products, particularly in the middle of the barrel.
Logistics disruptions in the Red Sea continued on Monday, with Yemen-based Houthis targeting a cargo ship in the Red Sea, which they claimed was American. However, shipping trackers reported that the Marshall Islands-flagged ship was Greek-owned and was heading to Iran with a corn cargo.
Saudi Arabia’s energy minister announced on Monday that the kingdom had plenty of spare capacity to cushion the oil market and that the reason behind the recent decision to halt its oil capacity expansion plans was due to the energy transition. Meanwhile, U.S. energy firms increased oil and natural gas rigs to their highest since mid-December, indicating a potential uptick in non-OPEC production.
Despite the potential increase in production, concerns regarding demand continue to linger. A U.S. Federal Reserve official stated that she had no interest in recommending an interest rate cut, which could slow economic growth and dampen oil demand. On the other hand, European Central Bank officials suggested that cuts were on the table sooner rather than later, soothing markets.
In other news, France’s TotalEnergies CEO Patrick Pouyanne stated that he does not see peak oil demand in the numbers and urged to exit the debate about peak oil demand, invest, and be serious. The International Energy Agency (IEA) predicts that oil demand will peak by 2030, undercutting the rationale for investment, while OPEC believes oil use will keep rising over the next two decades.
Finally, U.S. inflation data is expected on Tuesday, while British inflation data and euro zone GDP should land on Wednesday.