Thin Late-Year Trade Sees Oil Prices Settle Higher on Monday
In the midst of thin late-year trade, oil prices rose on Monday, driven by investors’ bets on a drop in temperatures across the U.S. and Europe over the coming weeks to boost diesel demand.
Brent Crude Futures Rise 0.3%
Brent crude futures rose 22 cents, or 0.3%, to settle at $74.39 a barrel. The more active March contract settled at $73.99 a barrel, up 20 cents. This marginal increase in prices is indicative of the current market sentiment, where investors are cautiously optimistic about the prospects of colder weather boosting diesel demand.
U.S. West Texas Intermediate Crude Gains 0.6%
U.S. West Texas Intermediate crude gained 39 cents, or 0.6%, to settle at $70.99 a barrel. This increase is relatively higher compared to Brent crude futures, reflecting the bullish sentiment among investors regarding the potential impact of colder weather on diesel demand.
Ultra-Low Sulfur Diesel Futures Settle at Highest Since November
U.S. ultra-low sulfur diesel futures settled 2.5% higher at $2.30 a gallon, the highest since Nov. 5. This significant increase in prices is a clear indication of investors’ growing confidence in the prospect of colder weather boosting diesel demand.
Diesel Prices Leading the Energy Complex
‘Diesel prices are leading the energy complex,’ fuel distributor TACenergy’s trading desk wrote on Monday. Concerns of colder weather in the weeks ahead are boosting diesel as a substitute for natural gas in space heating, TACenergy noted.
Weather Forecasts Supporting Oil Prices
Heating degree days, a measure of energy demand for space heating, are expected to rise to 499 over the next two weeks in the U.S., compared with 399 estimated on Friday, according to LSEG. Meteorologists at the firm also anticipate temperatures turning colder in Europe in January.
Natural Gas Futures Surge 17% to Highest Level Since January 2023
U.S. natural gas futures surged 17% to their highest level since January 2023, boosted by the weather forecasts and rising export demand. This increase in natural gas prices is a clear indication of investors’ growing concern about the potential impact of colder weather on energy demand.
Crude Stockpiles Expected to Have Fallen by 3 Million Barrels
Further support for oil prices could come from declining U.S. crude stockpiles, which are expected to have fallen by about 3 million barrels last week, a preliminary Reuters poll showed on Monday. This decline in inventory levels is a bullish signal for oil prices.
Investors Waiting for China’s PMI Factory Surveys
Investors are also waiting for China’s PMI factory surveys, due on Tuesday, followed by U.S. ISM survey on Friday, to gauge the economic health of the top oil-consuming nations. A weak Chinese economy could cause oversupply in oil markets next year, said Alex Hodes, analyst at brokerage firm StoneX.
Economic Implications of China’s PMI Factory Surveys
Chinese authorities have agreed to issue a record 3 trillion yuan ($411 billion) in special treasury bonds in 2025 to revive economic growth, Reuters reported last week. This move is expected to boost investor sentiment and potentially support oil prices.
Oil-Market Participants Speculating on U.S.-Iran Crude Exports
Oil-market participants are also speculating that U.S. President-elect Donald Trump will cut Iranian crude oil exports to below 500,000 barrels per day through sanctions, taking over 1 million barrels of daily crude oil supply off the global market, Hodes said.
Market Participants’ Views on Oil Prices
The current market sentiment is characterized by a mix of optimism and caution. Investors are betting on colder weather boosting diesel demand, which could lead to higher prices in the coming weeks. However, there are also concerns about the potential oversupply in oil markets next year, particularly if China’s economy weakens.
Conclusion
In conclusion, the current market trends suggest that investors are cautiously optimistic about the prospects of colder weather boosting diesel demand. The increase in ultra-low sulfur diesel futures and natural gas prices is a clear indication of this sentiment. However, there are also concerns about the potential oversupply in oil markets next year, particularly if China’s economy weakens.
Market Data
- Brent crude futures: $74.39 per barrel (up 22 cents or 0.3%)
- U.S. West Texas Intermediate crude: $70.99 per barrel (up 39 cents or 0.6%)
- Ultra-low sulfur diesel futures: $2.30 per gallon (up 2.5% since Nov. 5)
- Heating degree days: expected to rise to 499 over the next two weeks in the U.S.
References
By Shariq Khan, Paul Carsten and Robert Harvey, Florence Tan and Emily Chow; Editing by Susan Fenton, Rod Nickel and Alistair Bell