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Oil Prices See Upward Trajectory Amid Economic Recovery Hopes
SINGAPORE (Reuters) – Oil prices experienced an uptick on Friday, following a previous session that marked their highest closing value in over two months. This surge is largely attributed to optimism that governments worldwide may bolster policy measures aimed at stimulating economic growth, which in turn would enhance fuel demand.
Brent crude futures increased by 16 cents, or 0.2%, reaching $76.09 per barrel by 0132 GMT after settling at its peak since October 25 on Thursday. Meanwhile, U.S. West Texas Intermediate (WTI) crude rose 19 cents, or 0.3%, to $73.32 a barrel, also reflecting its highest closing price since October 14.
Both oil contracts are set to achieve their second consecutive weekly gain, thanks to improved trading activity following the holiday season.
Despite these gains, factory activity in Asia, Europe, and the U.S. concluded 2024 on a rather subdued note, as concerns regarding trade risks, particularly those arising from a potential second term for former President Donald Trump, combined with China’s tepid economic recovery, dampened expectations for the year ahead.
“The December PMIs for Asia revealed mixed results, yet we foresee that manufacturing activity and GDP growth in the region will remain tepid in the short term,” analysts from Capital Economics noted, referencing the purchasing managers’ index data released on Thursday.
“Given the anticipated economic challenges and prevailing inflation rates below targets across numerous countries, it is likely that central banks in Asia will maintain a loose monetary policy,” they added.
Lower interest rates are expected to catalyze economic growth, which usually leads to heightened fuel consumption. Investors are closely monitoring the U.S. Federal Reserve for potential interest rate cuts this year, aimed at bolstering the economy. Additionally, Chinese President Xi Jinping has promised to implement more proactive measures to enhance growth.
“As China’s economic outlook is expected to be crucial in 2025, there are significant hopes that government stimulus programs will stimulate consumption and increase oil demand in the forthcoming months,” stated Alex Hodes, an analyst at StoneX.
In the United States, the largest consumer of oil globally, gasoline and distillate inventories surged last week as refineries increased their output. However, fuel demand fell to a two-year low, according to the Energy Information Administration (EIA).
U.S. crude stockpiles declined by 1.2 million barrels to 415.6 million barrels last week, a reduction that was less than analysts’ predictions of a 2.8-million-barrel decrease.
Traders are also closely monitoring weather forecasts, as predictions of an impending cold snap across the U.S. and Europe could lead to increased demand for diesel, which may serve as an alternative heating source.
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