Crude oil prices have risen significantly on supply concerns, with prices currently trading around $70.30 after falling to $68.20. The volatility reflects the latest US crude oil inventory data that has influenced market sentiment.
US Crude oil Inventory Data
The US Energy Information Administration reported a decline in crude oil inventories by 1.4 million barrels for the week ending December 6, 2024, following a 5.1 million barrel decline the previous week. Total inventories stood at 422 million barrels, 6% below the five-year average. In contrast, gasoline inventories rose by 5.1 million barrels, and distillate fuel inventories increased by about 3.2 million barrels. This data points to a tightening in the oil market, reinforcing expectations for higher prices.
OPEC Revised Oil prices Demand Forecast
OPEC lowered its estimates for global oil demand growth for 2024 and 2025 for the fifth consecutive month. In its report issued on December 11, 2024, it lowered the forecast for 2025 by 90,000 barrels per day to 1.45 million barrels per day, and for 2024 by 210,000 barrels per day to 1.61 million barrels per day. This revision links to the decline in demand in key markets such as the Middle East, China, and India. This news led to a slight decline in oil prices, as traders reacted to concerns about the impact of the slowdown in global economic growth on oil consumption.
New European Sanctions on Russia
In a new move against Russia, the European Union is planning to impose additional sanctions focusing on its “shadow fleet” of oil tankers that are bypassing the imposed sanctions. The European Union agreed on these sanctions on December 11, 2024, which will include 52 new tankers, bringing the total number of targeted vessels to 79.
Will China Recover Oil Demand?
Oil prices rose this week amid expectations of a recovery in Chinese oil demand. The market is awaiting new stimulus measures from the Chinese government to boost economic activity. China’s Central Economic Work Conference kicked off on Wednesday, with the Politburo indicating that the government will take steps to ease monetary policy and implement stimulus measures aimed at boosting economic growth.
Later, China’s crude oil imports rose year-on-year in November for the first time since April, sparking some optimism. “While a single piece of data doesn’t set a trend, it’s a promising start,” said David Morrison, chief market analyst at Trade Nation.
In the same vein, WTI needs to break through and stabilize above $70 as a first step toward a price recovery. China also recorded its highest monthly crude oil imports since August 2023, boosting hopes for improved demand.
However, Carsten Fritsch, a commodity analyst at Commerzbank, suggested that the increase may not be a sign of a recovery in domestic demand, but rather that refiners may have taken advantage of low prices in November to build stocks. Fritsch explained that imports could fall again next year due to weaker domestic demand, partly due to a surge in electric vehicles in China.
Despite the increase in November, China’s crude oil imports in the first 11 months of the year were still down 1.9% from the same period last year, indicating a third annual decline in the past four years. “This confirms that China is no longer the main driver of global oil demand,” Fritsch added.
Oil prices rise amid geopolitical tensions and China hopes
Geopolitical tensions and hopes for a recovery in demand from China have boosted market sentiment, despite OPEC cutting its demand growth forecast. Prices also rose after reports that the United States could impose more sanctions on Russian oil exports. At the time of writing, West Texas Intermediate crude was trading at $70.47 per barrel, up 0.2%, while Brent crude on the Intercontinental Exchange was trading at $73.78 per barrel, up 0.4% from the previous close.
For her part, US Treasury Secretary Janet Yellen indicated on Wednesday that the weakness in the global oil market could present an opportunity to impose additional sanctions on Russia. The limited supply of crude oil is expected to support prices, as the market has been in a tight range for most of the year. Despite large production cuts by OPEC and its allies, oil prices have struggled to maintain their gains, fluctuating between $70 and $75 per barrel in recent months.
As for China, the country’s political bureau said on Monday that it will adopt an easy monetary policy, which could boost demand from the world’s largest oil importer. Oil prices also continued to hold a higher risk premium due to tensions in the Middle East, especially after the overthrow of Syrian President Bashar al-Assad’s regime by rebels, raising concerns about oil supplies from the region. Although Syria is not a major oil producer, its strategic location and close ties to Iran add complexity to the picture. However, oil supplies from the Middle East have not been significantly affected, even with the conflict between Israel and Hamas. If tensions continue to ease, the risk premium on oil prices may soon begin to fade.
