Oil prices experienced a modest increase on Wednesday, buoyed by ongoing optimism surrounding stimulus initiatives in China, the top oil-importing nation. Meanwhile, traders remained vigilant for additional insights regarding the U.S. economy and oil stockpiles.
The rise in crude prices was somewhat constrained by the dollar’s strength, which gained traction ahead of essential U.S. inflation figures expected later in the day, figures that are likely to influence interest rate forecasts. Additionally, geopolitical tensions continued to support oil’s risk premium as market participants awaited the establishment of a new government in Syria following the removal of President Bashar al-Assad.
Brent crude futures for February delivery ascended by 0.4 percent to $72.47 a barrel, while West Texas Intermediate (WTI) crude futures also increased by 0.4 percent, reaching $68.55 a barrel by 20:41 ET (01:41 GMT).
U.S. inventories show unexpected increase
Data from the American Petroleum Institute (API) released on Tuesday indicated that U.S. oil inventories rose unexpectedly by approximately 0.5 million barrels for the week ending December 6, diverging from forecasts predicting a decline of 1.3 million barrels. The API report also highlighted consecutive weekly increases in gasoline and distillate inventories, reflecting some resilience in U.S. supplies amid record-high oil production levels in the country.
With the winter season approaching, demand is anticipated to taper off, likely resulting in elevated inventory levels in the months ahead. Typically, the API data precedes a similar reading from the official inventory report, which is due later on Wednesday.
Oil prices supported by China’s stimulus
This week, oil prices recorded some gains following China’s commitment—being the world’s largest oil consumer—to implement more accommodative monetary policies and targeted stimulus measures aimed at driving economic growth. This announcement heightened expectations that Chinese oil demand would rebound with an uptick in economic activity. Additionally, trade data revealing a significant rise in Chinese oil imports through November further supported market sentiment.
Traders, however, are looking for more clarity on Beijing’s stimulus plans. The Central Economic Work Conference, commencing later on Wednesday, is expected to provide additional insights. Aside from developments in China, attention this week is also directed towards crucial U.S. consumer price index data, anticipated later on Wednesday, which will offer more guidance on interest rate trends. The dollar strengthened in anticipation of this data.
The Organization of the Petroleum Exporting Countries (OPEC) is set to release its monthly report later on Wednesday, following last week’s agreement to extend current supply cuts until the second quarter of 2025.
On Tuesday, oil prices saw a slight decline after recent gains fueled by China’s increased stimulus commitments and escalating geopolitical tensions in Syria. Traders remained cautious ahead of significant economic indicators from both China and the U.S., as well as the forthcoming OPEC report.
Brent crude futures for February delivery fell by 0.2 percent, settling at $72.00 per barrel, while WTI crude futures also dropped by 0.2 percent, reaching $67.96 per barrel by 20:44 ET (01:44 GMT).
Optimism surrounds China’s stimulus; more insights expected
On Monday, oil prices surged more than 1 percent after China’s top political body announced a shift towards a more accommodating monetary policy coupled with plans for additional stimulus. The Chinese government expressed its commitment to strengthen stock and property markets while “vigorously” promoting local consumption—marking its most explicit indication yet of targeted stimulus efforts.
This announcement triggered a rally across commodity markets, with oil particularly benefiting from hopes that a revitalized Chinese economy would drive demand for raw materials. The upcoming Central Economic Work Conference in China, beginning Wednesday, is anticipated to shed more light on stimulus plans, with trade data for November set to be released later today.
The prospect of new stimulus measures allowed traders to overlook disappointing inflation figures from China in November, which heightened calls for further economic assistance. Alongside developments in China, oil markets are bracing for key economic reports and central bank meetings in the remaining weeks of 2024. Notably, U.S. consumer inflation data is scheduled for release on Wednesday, just one week prior to a Federal Reserve meeting.
Rising tensions in Syria maintain risk premium
This week, oil prices have incorporated an elevated risk premium following the ousting of Syrian President Bashar al-Assad by rebel forces, marking the culmination of a 13-year civil conflict. However, uncertainty persists regarding the broader implications of this regime change for Syria and the wider geopolitical landscape in the Middle East.
Syria’s oil production has been significantly hampered by years of civil unrest, although there is potential for output increases under a new government, which could enhance global oil supplies. At its peak, Syria produced over 600,000 barrels of oil per day.
Read more: Oil prices slip as market reacts to China’s stimulus and Middle East instability
OPEC+ delays output cuts
In light of weak demand from China, Saudi Aramco, the largest crude oil exporter worldwide, has reduced its January 2025 prices for Asian markets to their lowest levels since early 2021. On Thursday, OPEC+ announced the postponement of output cut reversals by three months, now set for April, and extended the timeline for fully unwinding production cuts to the end of 2026.
OPEC+ manages about half of the world’s oil output. Initially, the group intended to begin unwinding cuts in October 2024; however, a slowdown in global demand and increased production elsewhere have necessitated multiple delays to this strategy. Additionally, a report from Baker Hughes revealed that the number of oil and gas rigs operating in the U.S. reached its highest level since mid-September last week. This increase signals rising output from the world’s largest crude producer, potentially further limiting oil price gains. With expectations of a supply surplus in the coming year, both futures contracts have experienced losses over the past two weeks.
