Oil prices surged on Friday, driven by upbeat Chinese economic data that exceeded expectations and lifted market sentiment. However, gains were capped by easing geopolitical tensions in the Middle East.
At 21:35 ET (02:35 GMT), Brent oil futures were 0.4 percent higher at $81.63 a barrel, and crude oil WTI futures expiring in March rose 0.5 percent to $78.24 a barrel.
Oil settled lower in the previous session as market participants booked profits after prices reached a four-month high earlier this week.
Expectations of Yemen’s Houthi militia announcing a halt in its attacks on ships in the Red Sea after a ceasefire deal between Israel and the militant Palestinian group Hamas also exerted downward pressure on oil.
Since November 2023, the Houthis have conducted over 100 attacks on ships, leading to significant disruptions in global shipping and increased insurance costs.
The expected halt in hostilities could restore confidence in these critical maritime routes, potentially stabilizing shipping operations and influencing crude oil supply chains.
Strong Chinese data spurs optimism for increased demand
Chinese economy grew more than expected in the fourth quarter of 2024, bringing the annual gross domestic product (GDP) to 5 percent, which was in line with Beijing’s 5 percent growth target, data showed on Friday.
Other data showed that industrial production grew more than expected in December as recent stimulus measures from Beijing continued to support business activity.
December retail sales were also stronger-than-expected and accelerated sharply from the rise seen in the prior month.
The outlook for oil demand hinges on the hope that China, the world’s largest oil importer, can revive its economy, especially as there are concerns about a potential oversupply due to expected increases in production from non-OPEC countries.
U.S. sanctions on Russian oil provide support
In a strategic move, the U.S. has imposed new sanctions targeting Russian oil exports. The International Energy Agency (IEA) noted that these sanctions could disrupt Russia’s oil supply chains, potentially tightening the global oil market.
The sanctions focus on entities responsible for over a third of Russian and Iranian crude exports in 2024, aiming to limit their ability to transport and sell oil. This development has raised concerns about potential supply shortages, contributing to the upward pressure on oil prices.
Oil prices had hit multi-month peaks earlier this week after the announcement was made, in anticipation of tightened supply.
The recent U.S. Energy Information Administration (EIA) showed a significant drawdown in crude oil inventories for the last week. This reduction further indicates a tightening supply.
Oil prices rise after hitting multi-month peaks
Oil prices rose on Thursday after hitting multi-month peaks in the previous session, driven by a combination of softer U.S. inflation data, new sanctions on Russian oil, and significant drawdowns in U.S. crude inventories. At 20:28 ET (01:28 GMT), Brent oil futures were 0.4 percent higher at $82.35 a barrel, and crude oil WTI futures expiring in March rose 0.4 percent to $79.01 a barrel.
Oil prices rose more than 2 percent on Wednesday as a benign U.S. inflation report brought back rate cut expectations into play. The prospect of lower interest rates typically supports economic growth, potentially boosting oil demand.
U.S. inflation data and its impact on oil prices
U.S. Consumer Price Index (CPI) for December rose by 0.4 percent, largely in line with economists’ expectations, while an underlying measure was slower than anticipated. The soft inflation data spurred a rally in oil prices, as it raised expectations of a less aggressive Federal Reserve stance, potentially weakening the U.S. dollar and boosting demand for commodities like crude oil. The data alleviated some concerns about the U.S. Federal Reserve’s hawkish outlook, where it has projected just two rate cuts in 2025.
When interest rates are lower, borrowing becomes cheaper, encouraging both businesses and consumers to spend more. This increased economic activity can drive higher demand for oil, as industries and transportation sectors require more energy. Additionally, lower rates often lead to a weaker U.S. dollar, which makes oil, priced in dollars, more affordable for foreign buyers. As a result, the combination of stronger demand and a weaker dollar typically leads to rising oil prices. The U.S. Dollar Index fell 0.1 percent on Thursday, retreating further from its two-year peak.
Read more: Oil prices rise to $82.35 amid soft U.S. inflation, tightening global supply concerns
OPEC projects 1.4 million barrels per day increase in oil demand for 2026
OPEC revealed its forecast indicating that global oil demand in 2026 is expected to increase at a rate comparable to that of this year. This announcement comes alongside a revision of its projections for 2024, which marks the sixth reduction, attributed to ongoing economic challenges in China, recognized as the world’s largest oil importer.
The 2026 outlook aligns with the Organization of the Petroleum Exporting Countries’ long-term perspective that oil consumption will continue to rise for the next two decades. This stands in stark contrast to the International Energy Agency’s prediction from the West, which suggests that oil demand will peak within this decade as the world transitions towards cleaner energy alternatives.
In its monthly report, OPEC indicated that demand is projected to grow by 1.43 million barrels per day (bpd) in 2026, reflecting a growth rate similar to the anticipated increase of 1.45 million bpd for this year. The 2026 estimate is presented as OPEC’s inaugural projection in its monthly review.
Additionally, a table presented in the report indicated that the forecast for demand growth in 2024 has been adjusted to 1.5 million bpd, down from the 1.61 million bpd noted in the previous month’s report. This adjustment represents a sixth consecutive downward revision for the 2024 forecast, which initially predicted a rise of 2.25 million bpd in July 2024.
OPEC’s outlook on oil demand is situated towards the upper end of industry expectations. Earlier on Wednesday, the IEA projected a more tempered growth rate for global oil demand in 2025, estimating an increase of 1.05 million bpd.
