Oil prices saw a more than 1% increase on Tuesday, recovering from Monday’s losses. This rebound is attributed to a brighter short-term outlook, driven by the potential for slightly tighter supplies as trading activity slowed down in anticipation of the Christmas and Hanukkah holidays.
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Brent crude futures settled at $73.58 per barrel, marking a 95-cent (1.3%) rise. U.S. West Texas Intermediate (WTI) crude futures settled at $70.10 a barrel, climbing 86 cents (1.2%).
Short-Term Price Fluctuations Expected Amid Holiday Season Lull
Analysts at FGE anticipate that benchmark oil prices will remain relatively stable around current levels in the near term. This projection is based on the expected decrease in trading activity during the holiday season, with market participants likely to remain on the sidelines until a clearer picture of global oil balances for 2024 and 2025 emerges.
According to FGE analysts, changes in supply and demand observed in December have so far supported their less bearish outlook. They also noted that the current short positioning in the paper market could magnify the impact of any supply disruption, potentially leading to upward price spikes.
Signs Point to Increased Oil Demand in Coming Months
Several analysts have highlighted emerging indicators of stronger oil demand in the coming months. Neil Crosby, Assistant Vice President of Oil Analytics at Sparta Commodities, observed that the consensus among major agencies regarding long 2025 liquids balances is beginning to unravel.
Crosby specifically cited the Energy Information Administration’s (EIA) recent short-term energy outlook, which now projects a draw in 2025 liquids, despite anticipating the return of some OPEC+ barrels next year.
US Crude and Distillate Stocks Projected to Decline
Market sources, citing preliminary data from the American Petroleum Institute (API), indicate that U.S. crude oil and distillate stocks likely fell last week by 3.2 million barrels and 2.5 million barrels, respectively. Conversely, gasoline stocks are estimated to have risen by 3.9 million barrels. Official data from the EIA is scheduled for release on Friday.
China’s Stimulus Plan and US Economic Data Influence Market Sentiment
Further bolstering oil prices is China’s announcement of a plan to issue 3 trillion yuan ($411 billion) in special treasury bonds next year. This significant fiscal stimulus aims to revitalize the country’s slowing economy. OANDA senior market analyst Kelvin Wong suggests that China’s stimulus measures could provide near-term support for WTI crude at $67 per barrel.
Market participants are also closely monitoring the U.S. economy, the world’s largest oil consumer. Recent economic data paints a mixed picture, with consumer confidence weakening in December, while new orders for key U.S.-manufactured capital goods surged in November. This surge, driven by strong demand for machinery, coupled with a rebound in new home sales, suggests a solid foundation for the U.S. economy as the year draws to a close.
Conclusion: Oil Market Dynamics Poised for Shifts in 2024
The recent rebound in oil prices, fueled by expectations of tighter supplies and positive demand signals, underscores the dynamic nature of the oil market. As the holiday season concludes and trading activity resumes, market participants will be closely watching for further clarity on global oil balances and the impact of China’s economic stimulus measures. These factors, along with developments in the US economy, will likely shape the trajectory of oil prices in the coming months.
