Cold Weather Supports Oil Demand
The global oil market witnessed a slight increase in prices on Friday, with Brent crude futures rising by 69 cents or 0.9% to $76.62 per barrel by 12:49 p.m. ET (1749 GMT). U.S. West Texas Intermediate crude gained $1.11 or 1.5% to $74.24.
Brent and WTI Prices Set for Weekly Gains
Brent is on track for a 3.3% weekly gain, while WTI is set to increase by 5%. The price hike can be attributed to the cold weather in Europe and the U.S., which has led to an increased demand for heating oil.
Chinese Economic Stimulus Measures
The market also took note of China’s announcements regarding economic stimulus measures. According to John Kilduff, partner at Again Capital in New York:
"China just is unceasing at this point in terms of their announcements about trying to stoke economic activity, and the market’s taking note of that."
Kilduff pointed out that worries about Chinese demand were a factor in bearish demand assumptions last year. China recently announced new measures to boost growth, including:
- A surprise move to raise wages for government workers
- The announcement of a sharp increase in funding from ultra-long treasury bonds
The additional funding is aimed at spurring business investment and consumer-boosting initiatives.
Demand for Heating Oil
Oil prices are likely to have gained some support due to the expected increased demand for heating oil following forecasts of colder weather in certain regions. Giovanni Staunovo, UBS analyst, noted:
"Oil demand is likely benefiting from cold temperatures across Europe and the U.S."
U.S. Crude Stockpiles Drop
The EIA data showed that U.S. crude stockpiles dropped by 1.2 million barrels to 415.6 million barrels last week.
Fuel Demand Hits Two-Year Low
Despite the drop in crude stockpiles, U.S. gasoline and distillate inventories jumped as refineries ramped up output. However, fuel demand hit a two-year low.
Holding Back Prices: A Strong Dollar
The dollar is on track for its best week in about two months, even as it dipped on Friday, due to expectations that the U.S. economy will continue to outperform its peers globally this year and that U.S. interest rates will stay relatively higher.
Higher rates increase borrowing costs, which can cut economic growth and demand for oil.
Market Outlook
The global oil market is expected to remain volatile in the coming weeks due to various factors, including:
- The impact of Chinese economic stimulus measures on oil demand
- The effect of cold weather on heating oil demand
- The potential influence of a strong dollar on oil prices
As the market continues to navigate these challenges, it remains to be seen how oil prices will react in the short and long term.
Sources
- EIA data on U.S. crude stockpiles
- Market analysis from UBS analyst Giovanni Staunovo
- Comments from John Kilduff, partner at Again Capital in New York
This article provides an in-depth look at the factors driving oil prices and their potential impact on the global market.
About the Author
Arathy Somasekhar is a Reuters journalist based in Houston. She has extensive experience covering the energy sector and has reported on various topics, including oil prices, refining, and petrochemicals.