Oil Prices Inch Lower Amid Caution

Oil prices saw a slight decline during Asian trading on Monday as market participants remained cautious ahead of the U.S. Federal Reserve's upcoming policy meeting. Investors also assessed a significant array of Chinese economic data for insights into demand.

Brent Oil Futures for February expired at $74.28 per barrel, a drop of 0.3%, while Crude Oil WTI Futures decreased 0.4% to $70.56 per barrel as of 20:35 ET (01:35 GMT).

The recent decline follows strong gains from the previous week, influenced by U.S. officials discussing the potential for more sanctions on Russia, which could tighten oil markets substantially over the coming year.

However, oil prices remain under pressure due to concerns regarding weak demand. Investors are also taking a cautious stance as they approach the Fed meeting, where it is widely anticipated that the central bank will lower rates by 25 basis points but indicate a slower pace of cuts for 2025.

China’s Industrial Production and Retail Sales Focus

China, the world's largest oil importer, reported November industrial production figures that aligned with expectations, marginally higher than last year's growth. This performance is attributed to stimulus measures bolstering business activity.

Conversely, retail sales in November fell significantly short of expectations due to weak private spending. Unemployment in China held steady at 5%. The sluggish pace of China’s economy has become a major concern for oil traders, with lower-than-expected demand growth impacting global oil consumption.

The International Energy Agency (IEA) last week indicated that China's oil demand has been on the decline, raising worries about oversupply in the next year. A recent Chinese economic policy meeting also concluded without providing substantial updates on any stimulus plans.

After last week's surge in prices fueled by anticipation of more stimulus from China’s Central Economic Work Conference (CEWC), the lack of bold new measures left traders uncertain about immediate economic boosts.

Oversupply Risks Under Scrutiny

The IEA upheld its view that the oil market will remain adequately supplied despite a slight increase in its demand forecast for next year. Meanwhile, OPEC has revised its oil demand growth estimates downwards for 2024 and 2025 for the fifth consecutive time while extending its supply cuts.

These developments have amplified bearish sentiment, as the risks of oversupply coincide with softened demand expectations. Nonetheless, strong gains were noted last week as fears of weak demand were largely counterbalanced by the prospect of tighter oil markets in response to the anticipated U.S. sanctions.

Given these factors, there is the possibility of more stringent measures against Iran, especially as Tehran seems to be losing its influence in Syria.