Oil prices experienced an uptick on Friday, recovering a significant portion of the losses incurred earlier in the week, as frigid weather across the U.S. and Europe heightened expectations for increased demand for heating fuels.
Traders were also keeping an eye out for any further indications of stimulus measures from China, following lackluster inflation figures from the country for December. It is anticipated that Beijing will escalate fiscal spending in 2025 to revitalize the Chinese economy, which has been grappling with a prolonged downturn.
Brent oil futures set to expire in March climbed by 0.4 percent to reach $77.22 per barrel, while West Texas Intermediate (WTI) crude futures also rose by 0.4 percent, reaching $75.53 per barrel as of 20:21 ET (01:21 GMT).
Cold weather sweeps across the U.S. and Europe
A persistent polar vortex has brought cold weather to multiple regions in the U.S. and Europe, with snowstorms affecting the central U.S. This climatic shift has led to increased speculation that demand for heating fuels will rise, subsequently driving up crude oil demand. However, the colder weather is also expected to disrupt travel throughout the northern hemisphere. Recent statistics indicated a series of substantial increases in U.S. oil product inventories, suggesting that demand from the world’s largest fuel consumer remains weak.
In addition, markets are attentive to signs of economic stimulus in China, especially as recent inflation data indicated limited improvements in the nation’s economy. The upcoming Lunar New Year holiday in February is also projected to bolster travel demand within the country.
Read more: Oil prices plummet by 0.5 percent as U.S. inventories surge, China reports weak data
Strong dollar limits oil price gains
Despite the rise in oil prices, gains were tempered by the strength of the U.S. dollar, which has kept both Brent and WTI futures on track for a subdued weekly performance. The dollar surged sharply this week, approaching a two-year peak as hawkish signals from the U.S. Federal Reserve prompted traders to brace for a slower pace of interest rate reductions in 2025. The market’s focus has now shifted to the nonfarm payrolls data for December, set to be released later on Friday, for additional insights on interest rates.
Federal Reserve policymakers are also expressing caution regarding protectionist and expansionary policies expected under President-elect Donald Trump, which could have long-term inflationary implications. A robust dollar tends to exert downward pressure on crude demand as it makes oil pricier for international buyers.
On Thursday, oil prices fell as investors reacted to data showing an unexpected increase in U.S. product inventories, coupled with disappointing economic indicators from China, the top global oil importer. Crude prices faced additional headwinds from a strengthening dollar, which reflected the Federal Reserve’s hawkish stance and fueled speculation about a significantly slower pace of interest rate cuts in 2025. March Brent crude futures dropped by 0.5 percent, settling at $75.79 per barrel, while WTI crude futures also fell by 0.5 percent, reaching $72.30 per barrel by 20:49 ET (01:49 GMT).
China’s inflation data
In December, inflation figures from China remained weak, with the consumer price index showing minimal changes. Meanwhile, the producer price index declined for the 27th consecutive month, according to data released on Thursday. This indicates limited progress in China’s ongoing disinflationary trend, despite the government implementing its most aggressive stimulus measures to date, which are set to continue through late 2024. As the largest global oil importer, China’s economic performance is a significant concern for crude markets, with traders worried that sluggish growth could negatively influence oil demand.
The situation is further complicated by potential economic challenges posed by the incoming administration of Donald Trump in the U.S., who has committed to imposing substantial trade tariffs on China.
U.S. crude inventories show decline
Overall U.S. crude inventories saw a decrease, albeit less than expected, with a drop of 0.96 million barrels compared to the anticipated 1.8 million barrels. This marks the eighth consecutive week of considerable product builds, raising concerns about waning demand in the world’s largest fuel consumer. Although cold weather in the U.S. has stimulated some heating demand, it has also disrupted holiday travel in several areas.
The robust dollar has weighed down crude prices as it reached over two-year highs, driven by the Federal Reserve’s hawkish posture. A strong dollar typically reduces oil demand by making crude more expensive for international buyers.
Earlier in the week, oil prices had shown an upward trend, continuing their rebound from the previous session as U.S. industry data pointed to a notable decline in oil inventories alongside perceived production cuts from OPEC nations. Prices gained traction this week due to ongoing signs of resilience in the U.S. economy and trader expectations that cold weather in both the U.S. and Europe would bolster demand. Brent oil futures for March delivery increased by 0.5 percent to $77.41 per barrel, while WTI crude futures also rose by 0.5 percent to $73.97 per barrel by 20:37 ET (01:37 GMT). Both contracts are nearing their highest levels since mid-October.
