Oil prices fell on Tuesday, marking a second consecutive day of losses following last week’s surge. This decline comes despite concerns over tighter supply from Russia and Iran due to expanding Western sanctions, which have somewhat mitigated the losses. Brent crude futures dipped by 8 cents, or 0.1 percent, to $76.22 per barrel at 0452 GMT, while U.S. West Texas Intermediate (WTI) crude dropped by 15 cents, or 0.19 percent, to $73.42.
Both benchmarks experienced a downturn on Monday, following a five-day rally that culminated on Friday, when prices reached their highest point since October. This increase was fueled by expectations of additional fiscal stimulus aimed at revitalizing China’s struggling economy.Â
“This week’s weakness is likely due to a technical correction, as traders react to softer economic data globally that undermines the optimism seen earlier,” reported Reuters, citing Priyanka Sachdeva, a senior market analyst at Phillip Nova. She highlighted bearish economic news from the U.S. and Germany as contributing factors.
Additionally, the rising supply from non-OPEC nations, combined with sluggish demand from China, is anticipated to keep the oil market well supplied throughout the year.
Read more: Oil prices reach two month high with Brent at $76.63 and WTI at $73.36
Anticipating economic data
Market participants are eagerly awaiting more data this week, including the U.S. December nonfarm payrolls report on Friday, which may provide insights into U.S. interest rate policy and the outlook for oil demand. “The move higher in crude oil prices appears to be running out of momentum,” stated analysts at ING in a note. “While there has been some tightening in the physical market, fundamentals through 2025 are still set to be comfortable, which should cap the upside.”
Despite concerns about tightening Russian and Iranian supply due to sanctions, these factors have helped stabilize oil prices.
This uncertainty has led to increased demand for Middle Eastern oil, as evidenced by Saudi Arabia’s decision to raise its February oil prices to Asia, the first increase in three months. The U.S. Commodity Futures Trading Commission reported that money managers raised their net long positions in U.S. crude futures and options for the week ending December 31.
Two weeks of consecutive increases for oil markets
Oil prices surged to their highest levels in over two months on Monday, spurred by expectations for improved demand from China, the world’s largest oil importer. However, the dollar’s strength limited significant gains. Crude prices have seen two consecutive weeks of increases, driven by the anticipation of rising demand in China, especially with Beijing expected to implement additional stimulus measures in the coming months. Colder weather in both the U.S. and Europe is also projected to enhance oil demand, particularly for distillates.
However, the dollar’s strength has stifled major gains in crude prices, with the greenback reaching its highest level in over two years ahead of a series of critical economic reports this week. As of 20:11 ET (01:11 GMT), Brent oil futures for March delivery increased by 0.2 percent to $76.63 per barrel, while West Texas Intermediate (WTI) crude futures rose by 0.2 percent to $73.36 per barrel.
Cold weather and stimulus measures fuel demand expectations
The cold weather sweeping through the U.S. and Europe is expected to increase demand for heating oil, potentially resulting in tighter supplies in both regions. A powerful winter storm is currently affecting large portions of the U.S., bringing snow, ice, and sub-zero temperatures due to a polar vortex, which is similarly anticipated to cause lower temperatures across Europe.Â
In China, traders are bracing for more stimulus from Beijing in response to ongoing signs of economic weakness. Inflation data set to be released later this week is also expected to offer further insights into the world’s largest oil consumer.
Oil prices have faced pressure from the strong dollar, which rose to a two-year high last week amid growing confidence that the Federal Reserve will slow its interest rate cuts in 2025. Two officials from the Federal Reserve reiterated the central bank’s recent stance that the battle against inflation is ongoing, leading to increased caution regarding prolonged elevated interest rates. Their comments have shifted focus to a series of important economic reports expected this week, particularly the nonfarm payroll data due on Friday.
Protectionist policies and their impact on the dollar
The anticipated protectionist policies under the incoming administration of President Donald Trump are also expected to bolster the dollar. A stronger dollar typically pressures oil demand by making crude oil more expensive for international buyers.Â
On Friday, oil prices saw a slight increase, edging toward a second consecutive weekly gain as optimism surrounding China’s economic recovery improved market sentiment. Brent oil futures rose by 0.3 percent to $72.68 per barrel, while WTI crude futures, set to expire in February, climbed by 0.2 percent to $76.08 per barrel. The previous session had recorded significant gains following data indicating growth in Chinese manufacturing activity. Both oil contracts are on track for a second consecutive weekly increase, with WTI expected to rise by 3.6 percent and Brent anticipated to increase by nearly 3 percent for the week.
Stimulus measures in China boost oil prices
Recent data indicated a modest expansion in China’s factory activity for December, as reported by a Caixin/S&P Global survey released on Thursday, although the growth fell short of expectations. An official report earlier in the week showed minimal growth in manufacturing activity, while the services and construction sectors performed better, suggesting that policy stimulus is beginning to have an effect in certain areas. Beijing has indicated plans for a more accommodative monetary policy in 2025 and has implemented significant stimulus measures since late September to boost its sluggish economy.
EIA data and oversupply concerns
In the U.S., crude oil inventories recorded a decline, while gasoline and distillate stocks saw notable increases due to weakened demand during the week ending December 27, according to the Energy Information Administration (EIA) report released on Thursday. The EIA noted a decrease in crude inventories by 1.2 million barrels last week, which was below analysts’ expectations for a 2.8 million-barrel decline.Â
Recent EIA data suggests that U.S. oil production remains near record highs, and the incoming Trump administration is likely to pursue policies aimed at enhancing domestic fossil fuel output. This situation arises amid concerns regarding potential oversupply due to anticipated production increases in non-OPEC countries, emphasizing an oversupply scenario. The International Energy Agency (IEA) recently indicated that the oil market will remain adequately supplied, despite forecasts of rising demand in 2025.
