Oil prices inched lower on Monday as markets remained cautious ahead of the U.S. Federal Reserve’s policy meeting later this week, while investors assessed a barrage of Chinese economic data for more cues on demand. Brent Oil Futures expiring in February fell 0.3 percent to $74.28 a barrel, while Crude Oil WTI Futures fell 0.4 percent to $70.56 a barrel by 20:35 ET (01:35 GMT). Both contracts cooled after clocking stellar gains last week, as U.S. officials outlined the possibility of more oil sanctions against Russia—a move that stands to substantially tighten markets in the coming year.
Demand concerns persist
But oil still remained under pressure from concerns over sluggish demand. Markets were also largely cautious before a Fed meeting this week, where the central bank is widely expected to trim rates by 25 basis points but also flag a slower pace of cuts for 2025.
Mixed signals from China’s economy
World’s largest oil importer China’s industrial production was in line with expectations for November and was slightly higher compared to last year’s growth, as the country’s stimulus measures supported business activity, data on Monday showed. However, retail sales for November were sharply lower than expectations as private spending remained weak. Other data showed China’s unemployment rate remained unchanged at 5 percent. China’s slowing economy remains a critical concern for oil traders. Markets have witnessed weaker-than-expected demand growth in China, traditionally a key driver for global oil consumption.
Oversupply fears highlighted by IEA
Last week, the International Energy Agency (IEA) noted that China’s oil demand has been contracting, further underscoring fears of oversupply in the coming year. A key Chinese economic policy meeting also concluded last week without offering any major cues on stimulus plans. Prices had gained sharply last week around expectations of more stimulus measures from China’s Central Economic Work Conference (CEWC). However, the updates from the meeting failed to provide cues for bold new measures by China to immediately boost its economy.
Read more: Oil prices dip amid supply surplus expectations and China’s stimulus efforts
Market sentiment and supply outlook
The IEA had last week maintained its projection that the oil market will remain adequately supplied, despite a slight rise in its demand forecast for next year. The Organization of the Petroleum Exporting Countries, known as OPEC, had lowered its forecasts for oil demand growth in 2024 and 2025, last week, its fifth consecutive cut. The cartel had also recently extended its run of supply cuts. These factors collectively heightened bearish sentiment, as oversupply risks coincide with softer demand expectations.
Price movements and market reactions
Oil prices dipped slightly on Friday amid expectations of a supply surplus in 2025. However, these losses were tempered by optimism surrounding new stimulus measures from China, the world’s largest oil importer, aimed at revitalizing its sluggish economy. As of 08:30 ET (01:31 GMT), Brent oil futures fell by 0.1 percent to $73.34 per barrel, while crude oil WTI futures saw a minor decline to $69.59 per barrel. Both contracts, set to expire in February, were poised for significant weekly gains, buoyed by the positive market reaction to China’s recent key policy meeting, which raised hopes for additional stimulus. Investor sentiment was also supported by anticipations of a Federal Reserve interest rate cut in the coming week, which could enhance economic activity in the U.S. and subsequently increase oil demand.
U.S. Treasury Secretary Janet Yellen noted on Wednesday that a softer global oil market might provide an opportunity for further action against Russia’s energy sector, as the U.S. continues its efforts to limit Moscow’s capacity to sustain its war against Ukraine. Speculation regarding potential supply cuts from Russia has also lent support to oil prices.
Assessing market dynamics
Oil prices remained relatively steady on Thursday as traders assessed various factors, including possible U.S. oil sanctions, new stimulus efforts in China, and a bleak demand outlook from OPEC. Prices stabilized after a rapid increase in the previous session, driven by expectations of tighter global supplies due to impending U.S. sanctions against Russia. This stability followed gains attributed to China, the leading oil importer, which indicated stronger economic support earlier in the week.
Recent price trends
As of 09:04 PM ET (02:04 GMT), Brent oil futures slightly declined to $73.50 per barrel, while crude oil WTI futures fell by 0.1 percent to $69.79 per barrel. Both contracts, set to expire in February, had risen over 2 percent on Wednesday. The consumer price index (CPI) for the U.S., released on Wednesday, met expectations and reinforced predictions that the Federal Reserve might lower interest rates in the upcoming week. This potential move could stimulate economic activity in the world’s largest energy consumer, thereby increasing demand for oil.
Government data released on Wednesday indicated that U.S. oil inventories unexpectedly increased more than expected during the week ending December 6. Additionally, oil production reached new highs, with gasoline and distillate inventories also rising for the second consecutive week, suggesting resilience in U.S. supplies.
