Crude oil prices rose on Friday as traders braced for a raft of data to be released in the US trading session, including inventory data from the Energy Information Administration (EIA), which was postponed due to Wednesday’s Christmas break. While other asset classes are experiencing low volatility, oil prices appear set to see some recent rallies before the end of the week.
The US Dollar Index (DXY) – which measures the performance of the US dollar (USD) against a basket of currencies – remains stable at a level slightly below its two-year high of around 108.00. The US dollar experienced a decline in volatility and analysts do not expect it to rise much by New Year’s Eve. However, its current state still allows for the possibility of reaching a new two-year high before the year ends, if an external event occurs. Crude Oil (WTI) is trading at $70.12 and Brent at $73.41.
The movement in crude oil prices could be an anomaly on Friday as other assets entered the calm Christmas market. With some key data points still needing to be absorbed, oil traders will need to focus as there is a very limited opportunity to trade. We expect to see some short volatile moves, although any potential rally will lack fundamentals that extend into 2025.
Looking up, the 100-day Simple Moving Average (SMA) at $70.59 and $71.46 (February 5 lows) act as strong resistance levels nearby. If more favorable winds emerge to support oil, the next pivot level will be $75.27 (January 12 high). However, beware of quick take profits as the end of the year quickly approaches.
Oil price rise on Chinese demand recovery
Oil prices aimed for weekly gains on Friday as optimism about a recovery in demand from China boosted sentiment. Meanwhile, falling U.S. crude oil inventories boosted prices on Friday.
Arslan Ali, derivatives analyst at FX empire, said in a report: “Geopolitical tensions have also added uncertainty, keeping natural gas and oil markets volatile.”
However, a stronger U.S. dollar, which rose 7% this quarter, capped further gains, making oil more expensive for non-dollar buyers. At the time of writing, WTI on the New York Mercantile Exchange was at $69.96 per barrel, up 0.5%.
Brent crude on the Intercontinental Exchange was at $73.11 a barrel, up 0.4% from the previous close. Both benchmark crudes were on track for small gains this week.
Optimism about a recovery in oil demand from China boosted the market on Friday as the World Bank raised its forecast for economic growth in the Asian country for 2024 and 2025. However, the bank also said weak household and business confidence will continue to weigh on economic activities next year.
Authorities in China are likely to issue special treasury bonds, which will be worth 3 trillion yuan or $411 billion in 2025, Reuters reported earlier this week.
China has been struggling with its economy over the past year as the real estate crisis and weak industrial activity weighed on commodity demand.
Oil imports declined steadily throughout the year, suggesting stable demand growth in the world’s largest crude oil importer. Moreover, experts predicted that Chinese oil demand is likely to peak in the coming years.
Investors will continue to monitor China’s economic environment in the coming weeks for more signals. According to the American Petroleum Institute, crude oil inventories in the United States fell by 3.2 million barrels last week.
Oil prices are heading for gains on growth expectations
Crude oil prices were heading for weekly gains earlier in the day after an update from the World Bank on China’s economic growth prospects next year.
Brent crude was trading at $73.18 per barrel at the time of writing, with West Texas Intermediate at $69.58 per barrel, after the World Bank revised its forecast for China’s GDP upwards for both this year and next. China itself issued an upward revision to GDP growth for 2023, and that was a significant revision, at 2.7%, which may also have helped fuel optimism about demand.
Separately, the latest weekly estimate of oil inventories from the American Petroleum Institute pointed to a strong withdrawal of 3.2 million barrels, another sign of strong demand for the commodity in its largest market. The Energy Information Administration’s estimate of weekly changes in crude oil inventories is due today, with a two-day delay due to the Christmas holidays.
However, benchmark indices are expected to post a modest year-on-year loss, largely due to an overfocus on Chinese demand and persistent but unjustified expectations that OPEC+ will start bringing oil back to the market, regardless of the price level. OPEC+ has not started returning oil and is fully aware of prices, but this has not stopped traders from placing bearish bets on the outlook.
The annual drop in prices results partly from the failure of the war in the Middle East to disrupt oil supplies, despite several escalation events that could have caused such disruption. However, when the exchange of missile strikes between Iran and Israel failed to ignite the region, traders rightly concluded that no one in the Middle East wanted to disrupt oil supplies. This has effectively set a price limit.
