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Oil prices fell for a third day this week, with the West Texas Intermediate (WTI) losing more than 2.3% below $70.8 on Wednesday. The latest downswing comes amid a combination of factors, three of which are likely making the highest impact. 

Why is Oil Down Again Today?

Oil prices moved lower on Wednesday as investors reacted to a strengthening dollar, oversupply, and fresh economic challenges in China.

The greenback surged higher on Wednesday after the market responded to the sentiment that interest rate cuts are unlikely before June for the Federal Reserve, the European Central Bank (ECB), and the Bank of England (BoE). 

Christopher Waller, a member of the US Federal Reserve, revised his earlier stance from November, indicating that rate cuts are contingent on a lack of resurgence in inflation. Meanwhile, economic scrutiny intensifies with a significant release, including US retail sales, set to be reported around 13:30 GMT.

These developments have lifted the dollar index above multiple significant technical levels and are now trading near the mid-103 zone. 

Moreover, oil prices came under further pressure after the monthly OPEC report on Wednesday failed to instigate any significant changes. The situation appears bleaker upon examining the report, as OPEC only discusses recovery and a projected deficit in late 2025. This signifies OPEC’s acknowledgment of challenges in salvaging current price levels for 2024, as existing circumstances prove challenging for any significant upward adjustments.

Already on a weekly loss, oil prices were further pressured following revelations that Russia breached its committed production cuts, adding to the disbalance between supply and demand. 

The third significant headwind for the oil markets was the release of China’s Q4 gross domestic product (GDP) data. Notably, the release showed that GDP for the last three months of 2023 rose by 5.2%, missing the consensus estimates of 5.3%. For the full year, GDP stood at 5.2%, up from the 3% increase in 2022. 

Oil Prices Continue Downward Trend Despite Red Sea Tensions

Amidst the aforementioned challenges, the WTI benchmark fell over 2.3% on Monday to $70.72 per barrel, while the Brent crude slipped more than 2% to $76.68.

WTI prices have been on a rollercoaster over the past few weeks, losing more than 6.6% since surging above $75 in late December. However, recent challenges have offset the key price drivers, including the ongoing naval and air conflicts in the Red Sea, which are causing significant shipping disruptions. 

The $74 mark remains a crucial resistance, proving resilient against recent attempts to breach it. In case of escalating tensions, $80 becomes a notable target, with $84 following suit once sustained daily closes above $80 are achieved. Conversely, the $67 level now acts as the support, aligning with a triple bottom formation from June.

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