Oil prices experienced a slight decline on Tuesday, retreating after recent gains driven by increased stimulus pledges from China, the world’s largest oil importer, and escalating geopolitical tensions in Syria. Traders remained cautious ahead of forthcoming economic indicators from both China and the U.S., as well as a monthly report from OPEC.
Brent oil futures for February delivery decreased by 0.2 percent, settling at $72.00 per barrel, while West Texas Intermediate (WTI) crude futures also fell by 0.2 percent, reaching $67.96 per barrel by 20:44 ET (01:44 GMT).
Optimism surrounds China’s stimulus, more insights anticipated
On Monday, oil prices surged over 1 percent following an announcement from China’s top political body regarding a shift towards a more accommodative monetary policy and plans for additional stimulus. The Chinese government indicated its commitment to bolster stock and property markets while “vigorously” enhancing local consumption—its most explicit signal yet of targeted stimulus measures.
This announcement triggered a rally across commodity markets, with oil benefitting from optimism that a revitalized Chinese economy would increase demand for raw materials. The upcoming Central Economic Work Conference in China, starting Wednesday, is expected to provide further details on stimulus plans, with trade data for November being released later today.
The promise of new stimulus measures allowed traders to overlook disappointing inflation data from China for November, which intensified calls for further economic support. In addition to developments in China, oil markets are preparing for several key economic reports and central bank meetings in the final weeks of 2024. Notably, U.S. consumer inflation data is set to be released on Wednesday, just one week before a Federal Reserve meeting.
Rising tensions in Syria maintain risk premium
This week, oil prices have incorporated a higher risk premium following the ousting of Syrian President Bashar al-Assad by rebel forces, culminating a 13-year civil conflict. However, uncertainty looms regarding the implications of this regime change for Syria and the broader geopolitical landscape in the Middle East.
Syria’s oil production has been significantly affected by years of civil war, but there is potential for an increase under a new regime, which could enhance global oil supplies. At its peak, Syria produced over 600,000 barrels of oil per day.
Following the fall of al-Assad, oil prices rose on Monday, reflecting growing concerns about instability in a region already fraught with conflict. Nevertheless, the positive momentum was tempered by a projected decline in demand for the coming year. By 6:48 GMT, Brent crude futures for February delivery had risen by 0.51 percent to $71.48 per barrel, while WTI crude futures increased by 0.55 percent, closing at $67.57 per barrel.
The political shift in Syria has sparked fears of renewed instability in a region that continues to grapple with war, while the ongoing Russia-Ukraine conflict has sustained geopolitical risk premiums, providing support for oil prices. However, Saudi Arabia’s price cuts and OPEC+’s recent decision to extend output cuts have signaled weaker demand from China, suggesting that the market may soften further in the coming year.
Investors are also closely monitoring potential market impacts stemming from U.S. President-elect Donald Trump’s anticipated energy policies and Middle East strategies. Indications of U.S. economic resilience and expectations that Trump’s expansionary policies may boost fuel demand could offer additional support to oil prices.
Read more: Oil prices rise on Middle East uncertainty despite weaker China demand
OPEC+ delays output cuts
In response to weak demand from China, Saudi Aramco, the largest crude oil exporter globally, has lowered its January 2025 prices for Asian markets to their lowest since early 2021. On Thursday, OPEC+ announced the postponement of output cut reversals by three months, now scheduled for April, and extended the timeline for fully unwinding production cuts to the end of 2026.
OPEC+ controls about half of the world’s oil output. Initially, the group planned to begin unwinding cuts in October 2024; however, a slowdown in global demand and increased production elsewhere have necessitated multiple delays to this plan.
Additionally, a Baker Hughes report indicated that the number of oil and gas rigs operating in the U.S. reached its highest level since mid-September last week. This increase suggests rising output from the world’s largest crude producer, potentially further capping oil price gains. With expectations of a supply surplus in the upcoming year, both futures contracts have recorded losses over the past two weeks.
