The price of oil remained relatively stable on Friday as market participants assessed the implications of cooling U.S. inflation data on Chinese demand and the potential for future interest rate cuts.
Brent crude futures saw a marginal increase, closing at $72.94 per barrel, up 6 cents or 0.08%. U.S. West Texas Intermediate (WTI) crude futures also experienced a slight rise, settling at $69.46 per barrel, an increase of 8 cents or 0.12%. Despite these minor gains, both benchmarks recorded a weekly decline of approximately 2.5%.
The U.S. dollar weakened against other currencies, retreating from a two-year high, but still poised for its third consecutive week of gains. This followed the release of data indicating a slowdown in U.S. inflation. The Federal Reserve recently lowered interest rates but also adjusted its projections for future rate cuts in the coming year.
A weaker dollar generally makes oil more affordable for buyers using other currencies, while interest rate reductions can potentially stimulate oil demand. November’s inflation figures showed a cooling trend, contributing to a surge in Wall Street’s major indexes amid volatile trading.
“Concerns about the Fed withdrawing its support for the market through its interest rate policies have dissipated,” noted John Kilduff, a partner at Again Capital in New York. He added that previous market anxieties revolved around the demand outlook, particularly concerning China, coupled with the potential loss of monetary support from the Federal Reserve.
Chinese state-owned refiner Sinopec, in its annual energy outlook released on Thursday, projected that China’s oil consumption would reach its peak by 2027 due to weakening demand for diesel and gasoline.
Emril Jamil, a senior research specialist at LSEG, emphasized the need for supply discipline within OPEC+ to bolster prices and address market uncertainties stemming from continuous revisions of its demand outlook. OPEC+, comprising the Organization of the Petroleum Exporting Countries and allied producers, recently lowered its global oil demand growth forecast for 2024 for the fifth consecutive month.
JPMorgan anticipates a shift in the oil market from a balanced state in 2024 to a surplus of 1.2 million barrels per day in 2025. This forecast is based on the bank’s projection of a 1.8 million barrel per day increase in non-OPEC+ supply in 2025, with OPEC output remaining at current levels.
Potentially impacting future supply, G7 nations are reportedly exploring measures to strengthen the price cap on Russian oil, including a potential outright ban or a reduction in the price threshold, according to a Bloomberg report on Thursday. Russia has managed to circumvent the existing $60 per barrel cap, implemented in 2022 following the invasion of Ukraine, by utilizing its “shadow fleet” of vessels. The EU and Britain have recently imposed further sanctions targeting these ships.
Data from the U.S. Commodity Futures Trading Commission (CFTC) revealed that money managers increased their net long positions in U.S. crude futures and options during the week ending December 17th.
In conclusion, oil prices held steady as market forces balanced the impact of cooling U.S. inflation, potential interest rate cuts, and concerns surrounding Chinese demand. While slight gains were observed, both Brent and WTI benchmarks experienced a weekly decline. The evolving dynamics of global supply and demand, coupled with geopolitical factors and monetary policy decisions, continue to shape the oil market’s trajectory.
