Monday saw a sharp decline in oil prices, wiping out gains from Friday as fresh worries about slowing demand in China and the U.S. combined with ambiguous signals from the U.S. Federal Reserve damaged investor confidence.

At 0800 GMT, the January contract for Brent oil was down 61 cents, or 0.75%, at $80.82 a barrel, while the December contract for U.S. West Texas Intermediate (WTI) crude was down 61 cents, or 0.79%, at $76.56.

As Iraq expressed support for OPEC+ oil cutbacks, prices increased by over 2% on Friday. However, they lost around 4% for the week, recording their third weekly loss for the first time since May.

Hiroyuki Kikukawa, head of N.S. Trading, a division of Nissan Securities, says, “Investors are more focused on slow demand in the United States and China, while worries over the potential supply disruptions from the Israel-Hamas conflict have somewhat receded.”

Last week, the U.S. Energy Information Administration (EIA) said that while consumption will decline, crude oil output in the country will increase this year by slightly less than anticipated.

According to the report, per capita gasoline usage in the United States may reach its lowest point in 20 years next year.

After Federal Reserve Chair Jerome Powell stated this week that the bank might raise interest rates once more if progress on reducing inflation stalled, markets remained cautious about further tightening U.S. policy. According to Tony Sycamore, a market analyst at I.G., “there is a good chance of more hawkish Fed speak this week” since financial conditions have loosened following a stock market rally on Friday.

This is “not a prospect that crude oil will welcome given that recent data in China and the U.S. has brought growth fears back to the surface,” he stated. Fears of declining demand grew when China, the world’s largest importer of crude oil, released weak economic statistics last week.

October saw consumer prices in China drop to levels not seen since the epidemic, raising concerns about the durability of the nation’s economic recovery. Furthermore, China’s refiners requested reduced supplies for December from Saudi Arabia, the biggest exporter in the world.

Nevertheless, Kikukawa stated that oil prices will be sustained if WTI hits $75 per barrel.

“If the market falls further, we will likely see support buying on expectations that Saudi Arabia and Russia will decide to continue their voluntary supply cuts after December,” Kikukawa stated.

Leading oil exporters Saudi Arabia and Russia said last week that they will keep reducing their voluntary oil output until the end of the year because of worries about demand and economic expansion, which is keeping the price of crude oil down. On November 26, the Organization of the Petroleum Exporting Countries (OPEC+) and its allies, which include Russia, will convene.

According to energy services company Baker Hughes (BKR.O.), U.S. energy companies reduced the number of oil rigs in operation for a second consecutive week, bringing it to its lowest level since January 2022. The number of rigs indicates future production.