Oil Prices Hold Steady Amid Mixed Signals on Chinese Demand and U.S. Inflation
Oil prices closed nearly unchanged on Friday as markets balanced concerns over Chinese demand with optimism surrounding potential interest rate cuts after U.S. inflation data showed signs of cooling.
Brent crude futures edged up by 6 cents (0.08%) to settle at $72.94 a barrel, while U.S. West Texas Intermediate (WTI) crude futures gained 8 cents (0.12%) to close at $69.46 per barrel. Despite these minor gains, both benchmarks ended the week with a 2.5% decline.
The U.S. dollar weakened from its recent two-year high but marked its third consecutive week of gains. Cooling inflation data, released shortly after the Federal Reserve’s interest rate cut, fueled expectations of reduced borrowing costs, potentially bolstering oil demand.
John Kilduff, a partner at Again Capital in New York, noted that concerns over the Federal Reserve’s monetary policies had eased significantly. “Fears of the Fed withdrawing support for the market have subsided,” he said, adding that earlier apprehensions about China’s demand outlook and potential monetary tightening had dampened sentiment.
China’s Energy Outlook and OPEC+ Challenges
In its annual energy report, Chinese state refiner Sinopec projected that the country’s crude oil imports could peak by 2025, with overall oil consumption expected to hit its zenith by 2027 as demand for diesel and gasoline wanes.
Meanwhile, OPEC+ continues to grapple with stabilizing the market. Emril Jamil, a senior research specialist at LSEG, emphasized the importance of supply discipline to address fluctuating demand forecasts. Notably, OPEC+ recently revised its 2024 global oil demand growth forecast downward for the fifth consecutive month.
Looking ahead, JPMorgan anticipates the oil market will shift from balance in 2024 to a surplus of 1.2 million barrels per day by 2025, driven by an increase in non-OPEC+ supply.
Global Trade and Geopolitical Impacts
On the geopolitical front, U.S. President-elect Donald Trump hinted at potential tariffs against the European Union unless the bloc reduces its trade deficit by engaging in larger oil and gas transactions with the U.S.
Simultaneously, G7 nations are exploring stricter measures on Russian oil, including adjustments to the $60 per barrel price cap implemented after the Ukraine invasion. Despite sanctions, Russia continues to navigate these restrictions through a “shadow fleet” of vessels, prompting further action from the EU and Britain.
Market Sentiment and Speculation
Money managers have increased their net long positions in U.S. crude futures and options, according to the U.S. Commodity Futures Trading Commission (CFTC). Analysts suggest that this reflects a cautious optimism as the market weighs competing factors, including inflation trends, geopolitical risks, and evolving demand forecasts.
The week’s developments underscore the complex dynamics shaping global oil markets, leaving investors to closely monitor economic indicators and policy changes in the coming months
