Oil prices experienced an uptick on Thursday following the release of data indicating a decline in U.S. oil inventories last week. Traders, however, remained cautious as they contemplated the market outlook for the upcoming year.
As of 20:39 ET (01:39 GMT), Brent oil futures increased by 0.7 percent, reaching $75.13 per barrel, while crude oil WTI futures for February delivery also surged 0.7 percent to $71.75 per barrel. Despite a moderate annual loss in 2024, traders approached 2025 with a degree of wariness, anticipating a potentially oversupplied market this year.
The American Petroleum Institute (API) reported on Tuesday that U.S. oil inventories dropped by 1.4 million barrels last week. Such a decrease suggests a rise in crude oil demand, which can positively impact prices. When inventories fall, it often leads traders to re-enter the oil market, driving prices higher.
Upcoming EIA data release
Later on Thursday, the U.S. Energy Information Administration (EIA)—the statistical branch of the U.S. Department of Energy—is scheduled to release its weekly data. Market participants will be eager to see if the official inventory report corroborates the decline, as these figures offer valuable insights into the supply and demand dynamics of the U.S. crude oil market, influencing pricing and economic decisions.
Anticipating oversupply in 2025
Looking ahead, the oil market is preparing for a potential oversupply in 2025. Despite the recent inventory drop, the latest EIA data indicates that U.S. oil production remains close to record levels. Furthermore, the incoming Donald Trump administration is expected to adopt policies aimed at boosting domestic fossil fuel production.
IEA forecasts adequate supply
The International Energy Agency (IEA) recently stated that the oil market will continue to be well-supplied, even with rising demand forecasts for 2025. The demand outlook is closely linked to expectations that China, the world’s largest oil importer, will rejuvenate its economy, particularly in light of concerns about an oversupply resulting from anticipated increases in production from non-OPEC nations. In his New Year’s address, Chinese President Xi Jinping indicated that the country would implement more proactive policies to drive growth in 2025.
Despite the positive signs, traders remain cautious about the future as increasing supply and sluggish demand recovery pose challenges to market stability.
Impact of China’s manufacturing data
On Tuesday, oil prices climbed, supported by promising data from China’s manufacturing sector. However, trading activity was subdued on the last day of the year as investors assessed what the upcoming year might hold. As of 21:05 ET (02:05 GMT), Brent oil futures rose by 0.7 percent to $74.51 per barrel, while WTI crude oil futures for February delivery also saw a 0.7 percent increase to $71.05 per barrel. The decrease in trading volumes was attributed to many institutional investors taking time off during the holiday season, along with year-end profit-taking and portfolio adjustments.
Focus on economic indicators
Attention is focused on the Chinese manufacturing data and the forthcoming U.S. ISM survey. In December, China’s manufacturing sector showed growth, albeit at a slower pace than expected, marking the third consecutive month of expansion, aided by new stimulus measures, according to purchasing managers’ index data released on Tuesday.
Reliance on China’s economic recovery
The demand outlook for oil is heavily reliant on hopes that China can revitalize its economy, especially given concerns about potential oversupply due to forecasted production increases from non-OPEC countries. Markets are eagerly awaiting more details on Beijing’s stimulus plans for the coming year, with recent reports suggesting an intention to ramp up fiscal spending to stimulate economic growth. Additionally, the U.S. is set to release the ISM survey for December on Friday, which traders will scrutinize for insights into the economic activity of the world’s largest energy consumer.
Annual declines in oil contracts
Both oil contracts are poised for annual declines, with WTI expected to drop nearly 1 percent and Brent projected to decrease by nearly 4 percent. Traders remain cautious regarding China’s economic outlook and the looming specter of oversupply in the months to come. The IEA has recently raised its demand forecast for the next year while maintaining that the oil market will remain adequately supplied. Current EIA data shows that U.S. oil production is still near record levels, and the incoming administration is likely to pursue policies that enhance domestic fossil fuel production.
Broader economic concerns
Market participants are also concerned about broader economic challenges, including weaker-than-expected demand growth in China, a vital player in global oil consumption. China’s oil demand has been contracting, intensifying worries about the anticipated oversupply situation. As 2025 approaches, concerns are mounting regarding the outlook, as rising supply and slow demand recovery threaten market equilibrium.
Limited holiday trading activity
On Monday, oil prices dipped slightly during limited holiday trading as market participants awaited significant economic data from both China and the U.S. later in the week, hoping to gauge growth prospects for the world’s two largest oil consumers. Brent crude futures fell by 6 cents, settling at $74.11 a barrel by 01:11 GMT, while the more actively traded March contract also decreased by 6 cents to $73.73 per barrel. Meanwhile, U.S. West Texas Intermediate crude fell by 8 cents to $70.52 a barrel. Both contracts had seen an approximate 1.4 percent increase the previous week, driven by a larger-than-expected reduction in U.S. crude inventories for the week ending December 20, as refiners ramped up operations and holiday season demand for fuel surged.
