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Oil drops on weak demand, strong dollar

Crude oil

The front-month March contract for Brent crude slipped 14 cents, or 0.1%, to $79.41 a barrel

Oil prices edged lower on Wednesday, weighed down by concerns over weak demand and a stronger dollar even though escalating geopolitical tensions limited the losses.

The front-month March contract for Brent crude slipped 14 cents, or 0.1%, to $79.41 a barrel as at 0333 GMT. U.S. West Texas Intermediate (WTI) crude dropped 11 cents, or 0.2%, to $74.26 a barrel.

U.S. crude stocks dropped by 6.67 million barrels in the week ended January 19, according to market sources citing American Petroleum Institute (API) figures on Tuesday. Gasoline inventories, however, rose by 7.2 million barrels, stoking concerns over fuel demand in the world’s top oil consumer.

The EIA, the statistical arm of the U.S. Department of Energy, will release the data later on Wednesday.

A stronger U.S. dollar also weighed on oil prices as demand from buyers in other currencies slumps as they have to pay more for dollar-denominated oil.

Without current geopolitical tensions, we believe crude would sell off meaningfully. Over time, we expect supply risk premiums to decouple from conflict risk, analogous to Russia-Ukraine, said Vikas Dwivedi, global energy strategist at Macquarie, in a note.

Barring escalation in the Middle East, we expect crude price to stay in the current range for 1Q24. We do not expect supply loss, he added.

On the supply side, Libya’s 300,000 bpd Sharara oilfield restarted on January 21 after a protest-related pause since early January.

Elsewhere, U.S.’s third-biggest oil-producing state of North Dakota brought some oil output back online after weather-related disruption, the state’s pipeline authority said. But output was still down as much as 300,000 bpd. In mid-January, output had weakened by as much as 425,000 bpd due to extreme cold.

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