Oil drops as dour economic outlook adds to oversupply concerns

By Shariq Khan

NEW YORK (Reuters) -Oil prices fell on Thursday as central bankers in the U.S., Europe and Asia signalled caution over easing monetary policy, fanning concerns that weak economic activity could dent demand for oil next year.

Brent crude futures fell by 71 cents, or 1%, to $72.68 a barrel by 12:32 p.m. EST (1732 GMT).

U.S. West Texas Intermediate crude futures for January delivery fell 48 cents, or 0.7%, to $70.10 per barrel. The January contract expires on Thursday and more-active WTI futures for February fell 74 cents, or 1.1%, to $69.28 per barrel.

The U.S. Federal Reserve cut rates as expected on Wednesday but Chair Jerome Powell warned that stubborn inflation would make the central bank more cautious about cutting rates next year.

The U.S. dollar rose to a two-year high, making oil more expensive for buyers holding other currencies.

"A less accommodative Fed in 2025 than initially expected has markets adjusting their expectations," Alex Hodes, analyst at commodities brokerage StoneX said.

Elsewhere, Bank of England policymakers held interest rates steady on Thursday, while officials disagreed over how to respond to a slowing economy with nagging inflation pressure. The Bank of Japan kept ultra-low interest rates as U.S. President-elect Donald Trump's vows to impose tariffs cast a shadow over the country's export-reliant economy.

Softening economic activity could deepen a slowdown in oil demand growth next year. Brent futures have shed more than 5% so far this year, setting up a second consecutive annual loss, as a faltering Chinese economy weighed heavily on crude oil demand.

Energy transition measures have also hit demand sharply in China, the top oil importer. State-backed energy giant Sinopec (OTC:SHIIY ) on Thursday said it expects China's petroleum consumption to peak in 2027 as fuel demand weakens.



The oil market is widely expected to be in a surplus next year, with J.P. Morgan analysts predicting that supply will outpace demand to the tune of 1.2 million barrels per day (bpd).

Some support for the oil market came as U.S. crude stocks declined by 934,000 barrels in the week to Dec. 13. Still, the draw was smaller than the 1.6 million-barrel drawdown analysts had forecast in a Reuters poll. [EIA/S]

Source: Investing.com