The oil market is off to a bullish start as it recorded an oil price increase during the year’s first trading session. Brent crude climbed $1.20. It registered a 1.5 percent surge, settling at $78.24 a barrel as of 04:38 GMT. Meanwhile, U.S. West Texas Intermediate (WTI) crude rose by $1 or 1.4 percent to $72.66 a barrel.
Major drivers of oil price increase
Two factors fueled this surge in oil prices. First is the potential supply disruptions in the Middle East following a naval incident in the Red Sea. The other is a strong holiday demand and economic upswing in China. The country is the world’s leading importer of crude oil.
“The oil price may be affected by the escalation of the situation in the Red Sea over the weekend and the peak demand season during China’s Spring Festival,” shared Leon Li, a Shanghai-based analyst with CMC Markets.
The Spring Festival refers to the Lunar New Year holiday, which falls in early February.
Li also mentioned that the expected demand during the Chinese holiday period fosters optimism for a rebound in oil prices in January.
In China, the prospect of new stimulus measures has also gained traction among investors. It follows the contraction of manufacturing activity for the third consecutive month in December. Such stimulus efforts could spur economic growth, boosting oil demand in the world’s second-largest oil consumer and providing additional support to oil prices.
According to industry sources, China further plans to import 179.01 million metric tons of crude oil in 2024. It marks a 60 percent increase from last year.
Meanwhile, experts note that as the said naval conflict intensifies, it could also jeopardize critical maritime routes vital for oil transportation. These include the Red Sea and the Straits of Hormuz in the Gulf.
Read: Oil market in 2024: Increased demand, dynamic supply sources
2024 outlook
According to a recent Reuters survey, economists and analysts predict an average price of $82.56 per barrel for Brent crude in 2024. This estimate is marginally higher than the 2023 average of $82.17. While analysts anticipate that sluggish global growth might limit demand, they also foresee geopolitical tensions as a potential factor affecting oil prices.
In December last year, investment consultancy Century Financial revealed a more modest scenario, with Brent crude stabilizing in the mid-$60s and WTI at around $65. All these projections hinge on the looming possibility of a global recession and ongoing geopolitical tensions.
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