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.
IEA’s oversupply outlook weighs on oil prices
Prices remained largely stable on Thursday after the International Energy Agency (IEA) slightly increased its demand forecast for the next year but held firm on its projection that the oil market will be sufficiently supplied. Broader economic anxieties, including weaker-than-expected demand growth in China—a historically significant driver of global oil consumption—have also affected market sentiment. The IEA highlighted that China’s oil demand has been contracting, further emphasizing the anticipated oversupply situation.
On Wednesday, the Organization of the Petroleum Exporting Countries (OPEC) reduced its oil demand growth forecasts for 2024 and 2025 for the fifth consecutive time. The cartel has also recently extended its supply cuts.
Despite the bearish outlook on supply, refinery operations have been increasing in December, and seasonal trends may provide temporary price support, according to the IEA. Nevertheless, traders remain cautious due to the combination of rising supply and a sluggish demand recovery.
China’s stimulus efforts support oil prices
China has unveiled plans to expand its budget deficit, enhance debt issuance, and ease monetary policy to foster economic growth amid expected trade tensions with the U.S., as reported in a state media release following the Central Economic Work Conference (CEWC) held on December 11-12. Analysts view this change in strategy as an indication that China is willing to take on more debt to prioritize economic growth over short-term financial risk management. These measures are designed to stimulate industrial activity, infrastructure projects, and consumer spending, which are likely to boost energy consumption, particularly for oil.
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.
Market dynamics and U.S. economic indicators
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.
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.
This price movement occurred despite OPEC’s downward revision of its oil demand growth forecasts for 2024 and 2025, marking the fifth consecutive adjustment. Additionally, U.S. Treasury Secretary Janet Yellen commented on Wednesday that a softened global oil market could create room for further actions against Russia’s energy sector as the U.S. works to limit Moscow’s capabilities in its ongoing conflict with Ukraine.
Read more: Oil prices steady as traders balance China’s stimulus and OPEC’s poor demand forecasts
Assessing U.S. CPI and crude inventories
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.
