Oil prices continued to rise on Thursday following the Christmas holiday, supported by new stimulus measures in China and a decrease in U.S. crude inventories. As of 21:06 ET (02:06 GMT), Brent oil futures increased by 0.2 percent, reaching $73.71 a barrel, while crude oil WTI futures also rose by 0.2 percent, hitting $69.80 a barrel. Trading volumes were anticipated to remain low for the rest of the holiday-shortened week.
After a more than 1 percent increase on Tuesday, oil prices gained further on Thursday due to reports about fresh stimulus initiatives from China.
Support for oil prices from China’s new stimulus
Chinese authorities have announced plans to issue a record 3 trillion yuan (approximately $411 billion) in special treasury bonds next year as part of an intensified fiscal strategy to stimulate a struggling economy, according to Reuters. Additionally, local officials are now permitted to expand investments using key government bonds and simplify approval processes, allowing projects that are not explicitly restricted by a cabinet-published list. This approach aims to enhance the utilization of public funding for economic growth, as outlined in a government document released on Wednesday.
China’s economic performance significantly influences global oil prices, given its status as the largest oil importer. A thriving Chinese economy typically leads to increased demand for crude oil, necessary to fuel industries, transportation, and other energy-intensive sectors, often resulting in higher oil prices.
However, China’s economic recovery following the COVID-19 pandemic has encountered several obstacles, such as declining consumer confidence, weak export demand, and a troubled property sector. In response to these challenges, Beijing has rolled out various stimulus measures designed to revive economic growth.
Read more: Crude oil prices edge up 0.4 percent amid supply concerns and demand focus
U.S. crude inventories decline
Reports indicate that U.S. oil inventories decreased by 3.2 million barrels during the week ending December 20, according to data from the American Petroleum Institute (API). Gasoline inventories rose by 3.9 million barrels, while distillate inventories, which include diesel and heating oil, fell by approximately 2.5 million barrels. These figures precede data from the Energy Information Administration, expected on Friday.
A Reuters poll conducted on Tuesday suggested that crude oil inventories likely dropped by around 1.9 million barrels for the week ending December 20, with gasoline stocks anticipated to decline by 1.1 million barrels and distillate inventories by 0.3 million barrels. Oil prices saw a modest uptick on Tuesday, remaining within a narrow trading range as traders considered the potential for a supply surplus and anticipated softer demand in the year ahead.
February Brent futures increased by 0.4 percent to $72.91 a barrel, while West Texas Intermediate (WTI) crude futures also rose by 0.4 percent, reaching $69.51 a barrel.
Declining oil prices in 2024 amid demand concerns
In 2024, both Brent and WTI prices have decreased by about 5 percent, primarily due to ongoing concerns regarding falling demand in China. The world’s largest oil importer has seen a decline in oil imports throughout the year, struggling with sluggish economic growth. Although plans for increased fiscal spending and stimulus measures have been outlined for the upcoming year, markets are still waiting for more concrete details.
The surge in electric vehicle adoption in China has also played a role in diminishing fuel demand within the country. Both OPEC and the International Energy Agency (IEA) have forecasted slower demand growth in 2025, attributing this trend to weakened demand in China, which may face additional economic challenges from a renewed trade conflict with the U.S. under Donald Trump.
Oil markets are exercising caution regarding a potential supply surplus in 2025. Although OPEC has recently agreed to extend its current supply cuts until at least mid-2025, production levels in other regions may rise. U.S. oil production remains near record highs and could increase further in the coming year, especially with Trump’s pledges to enhance domestic energy production.
Government funding secured amid shutdown concerns
On Monday, oil prices experienced a slight uptick as traders reacted positively to the U.S. government’s successful avoidance of a shutdown over the weekend and softer inflation data. February Brent crude futures rose by 0.4 percent to $73.20 a barrel, while WTI crude futures gained 0.4 percent, reaching $69.75 a barrel.
The news that the U.S. government had averted a potential shutdown was well-received by oil traders. This development followed President Joe Biden’s approval of a temporary spending bill that secures government funding through March. Prior to this, concerns had mounted over a possible government shutdown after President-elect Trump criticized a bipartisan funding bill and proposed an alternative that aimed to raise the debt limit, which was ultimately rejected.
Additionally, oil markets found support from a weakening dollar, which retreated from year-long highs after the PCE price index—the Federal Reserve’s preferred measure of inflation—revealed lower-than-expected results for November, indicating a moderation in inflationary pressures. However, this data followed the Fed’s signals regarding a slower pace of rate cuts in 2025, a scenario that could hinder economic growth and negatively affect oil demand.
