This week, oil prices are up after ending on Friday at their lowest level in three weeks.
The market has been buoyed by geopolitical tensions, and the hope of a recovery in China’s demand despite the Organization of the Petroleum Exporting Countries lowering its forecast for growth in demand.
Reports that the US could impose additional sanctions on Russian oil imports boosted prices.
The West Texas Intermediate crude was trading at $70.47 a barrel as of the writing date, an increase of 0.2%.
Brent crude at the Intercontinental Exchange closed at $73.78 per barrel, an increase of 0.4% over the previous close.
US Treasury Secretary Janet Yellen said on Wednesday that a weaker oil market in the world could provide an opportunity to impose more sanctions against Russia.
The US and western countries continue their efforts to hinder Moscow’s ability wage war on Ukraine.
Oil prices have been fluctuating for the majority of this year due to a limited supply of crude oil.
Even after a drastic reduction in production by OPEC, the crude oil price has not been able to maintain gains.
Over the last few months, prices have largely traded in a narrow band of $70-$75 a barrel.
China’s Politburo said on Monday that it would adopt an easing monetary policy which could help revive the demand for fuel from the world’s largest importer.
Will China’s demand for goods and services revive?
This week, oil prices have risen on the hope of a rebound in Chinese demand.
Markets expect the Chinese government will provide fresh stimuli to stimulate economic activity.
The China Central Economic Work Conference began on Wednesday.
The country’s Politburo announced that it would relax monetary policy, and implement more targeted stimuli measures to boost the economy.
For the first time in April, China’s crude oil imports increased on an annual basis during November.
David Morrison, Senior Market Analyst at Trade Nation, said:
One data set does not make a trend but it is a promising beginning.
WTI must break and hold over $70 to be a significant first step in a price recovery.
The Asian giant imported the largest volume of crude oil a month in August 2023.
“However it is unlikely that this is an indication of a stronger domestic demand.” Carsten Fritsch is a commodity analyst with Commerzbank AG. He said that refineries may have taken advantage of the low prices in November in order to stock up.
A German bank believes that the weak demand in Germany will also lead to a further decline in imports next year.
The country’s growing fleet of electric cars is another reason.
Even though crude oil imports increased in November, they are still 1,9% lower than the level of the same period in last year. This means that a decline in annual imports is likely to occur for the third consecutive time in the past four years.
Fritsch said, “This is further proof that China is not the main driver for global oil demand.”
Middle East tensions
After the rebels overthrew President Bashar al-Assad’s Syrian regime, oil prices retained a higher premium for risk. This raised concerns about oil supply in this region.
Syria may not be a major oil exporter, but its Middle East location and close relationship with Iran complicates things.
He also said that the leader of the Syrian rebels, Ahmad al-Sharaa, better known as Abu Mohammed al-Golani, will dissolve the security force of the regime toppled by Bashar al-Assad.
Even with the conflict between Israel’s militant group Hamas and the conflict between Israel, the oil supply in the Middle East is not affected.
The risk premium on crude oil could begin to diminish soon if tensions don’t escalate.
The absence of a risk premium on the market may further impact prices, as there are concerns about an oversupply and a faltering demand next year.
Experts believe that the prices of oil could range in the near future as non-OPEC nations such as Brazil and the US are expected to increase their production.
OPEC revives demand growth forecast
The cartel cut its December forecast for global oil demand growth for the fifth consecutive month on Wednesday.
OPEC has reduced its estimate of global demand growth this year by 210,00 barrels per day compared to the previous assessment.
The demand for crude oil is now growing by 1.6 millions barrels per day.
The cartel has lowered its 2025 forecast by 90 000 barrels per days and expects oil consumption to rise by 1.4 millions barrels per daily next year.
The cartel has said that it has adjusted its forecast for this year downwards due to the lower demand in China, India, and other Asian countries during the third quarter.
Investors are now waiting for the International Energy Agency’s monthly report, which is due to be released on Thursday.
According to the Paris-based agency, oil demand will likely grow below 1 million barrels a day in 2019.
Demand growth is also likely to average just short of the 1-million-barrel-per-day level this year as well, according to IEA.
This post Oil Prices Rise as OPEC Cuts Demand Forecasts: Will Gains Last? This post Oil prices rise as OPEC cuts demand forecasts; will the gains last? appeared first on ICD
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