Oil prices saw an upward trend on Friday, poised for weekly gains. This surge was fueled by frigid temperatures in Europe and the U.S., coupled with signals of increased economic stimulus from China, driving prices to their highest point in over two months on Thursday.
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Brent crude futures increased by 69 cents, or 0.9%, reaching $76.62 a barrel by 12:49 p.m. ET (1749 GMT). This followed Thursday’s settlement at the highest level since October 25th. U.S. West Texas Intermediate crude also climbed, gaining $1.11, or 1.5%, to reach $74.24.
Weekly Gains and Chinese Economic Signals
Brent crude was on track for a substantial 3.3% weekly gain, while WTI was positioned for a 5% increase. Indicators of economic weakness in China have amplified expectations of policy interventions aimed at stimulating growth in the world’s leading oil importer.
“China’s continuous announcements regarding efforts to bolster economic activity are being closely watched by the market,” remarked John Kilduff, partner at Again Capital in New York. He further noted that concerns surrounding Chinese demand contributed significantly to bearish demand projections in the previous year.
China recently unveiled several new measures to invigorate growth. These include an unexpected wage increase for government employees and a significant boost in funding through ultra-long treasury bonds. This additional funding is intended to encourage business investment and initiatives that stimulate consumer spending.
Cold Weather and Inventory Data
The anticipated rise in heating oil demand due to colder weather forecasts in certain regions has likely provided price support for oil. “Oil demand is probably benefiting from the low temperatures across Europe and the U.S.,” commented UBS analyst Giovanni Staunovo.
Further bolstering prices, U.S. crude stockpiles decreased by 1.2 million barrels last week, reaching 415.6 million barrels, according to EIA data.
Concurrently, U.S. gasoline and distillate inventories saw an increase as refineries boosted output, despite fuel demand reaching a two-year low.
The Dollar’s Impact and Economic Outlook
However, the dollar’s strength, on track for its best week in approximately two months, tempered price gains. This strength, even with a slight dip on Friday, stems from expectations of continued U.S. economic outperformance globally this year and sustained relatively higher U.S. interest rates. Elevated interest rates increase borrowing costs, potentially hindering economic growth and oil demand.
Ultimately, the interplay of these factors—cold weather, Chinese stimulus efforts, inventory fluctuations, and the dollar’s strength—will continue to shape the trajectory of oil prices in the coming weeks.
