Oil prices experienced a mixed day on Friday, with Brent crude futures experiencing a minor decline while US West Texas Intermediate (WTI) crude hovered around its previous close. However, a closer look at the market reveals that both Brent and WTI are poised to post gains on a weekly basis.
Brent Crude Futures Down 2 Cents
At 08:35 a.m. Saudi time, Brent crude futures had slipped by 2 cents to reach $73.24 per barrel. This decline comes as the global economy continues to grapple with the ongoing effects of the pandemic and supply chain disruptions.
US West Texas Intermediate Crude Remains Steady
In contrast, US WTI crude remained relatively unchanged from its previous close, trading at $69.61 per barrel. Despite the minor fluctuations in prices, market analysts are optimistic about the prospects for oil demand, particularly in light of the World Bank’s revised forecast for China’s economic growth.
World Bank Raises Forecast for China’s Economic Growth
In a significant development, the World Bank has increased its estimate for China’s gross domestic product (GDP) growth for 2024 and 2025. While this upward revision is seen as a positive sign, the organization also warned that subdued household and business confidence, combined with challenges in the property sector, will likely continue to weigh on the economy next year.
China’s Economic Growth: A Mixed Picture
The Chinese government has revised its estimate for 2023 GDP growth upwards by 2.7 percent, although this change is expected to have a limited impact on overall economic performance this year. Nevertheless, the increase in the forecast for 2024 and 2025 provides some much-needed optimism for oil markets.
Beijing’s Fiscal Stimulus Efforts
As part of its efforts to revive the faltering economy, Beijing has agreed to issue an additional 3 trillion yuan ($411 billion) worth of special treasury bonds next year. This move is seen as a key component of the government’s fiscal stimulus package and is likely to have a positive impact on oil demand.
A Stronger US Dollar Caps Gains
However, a stronger US dollar has been a major factor in capping gains for oil prices this week. The greenback has risen approximately 7 percent over the past quarter and remains near its two-year high against major peers following the Federal Reserve’s signal that rate cuts will be slower in 2025.
Impact of Stronger Dollar on Oil Prices
A stronger dollar makes oil more expensive for holders of other currencies, which can lead to reduced demand for crude. This dynamic is particularly relevant given the ongoing economic headwinds facing many countries around the world.
US Crude Inventories: A Key Factor in Market Sentiment
The latest weekly report on US inventories from the American Petroleum Institute (API) industry group revealed that crude stocks declined by 3.2 million barrels last week. While this decline is seen as a positive sign, traders will be waiting to see if the official inventory data from the US Energy Information Administration (EIA) confirms this trend.
EIA Inventory Report: A Crucial Data Point
The EIA’s weekly report on crude inventories is due at 9 p.m. Saudi time on Friday, later than usual because of the Christmas holiday. Analysts in a Reuters poll expect crude inventories to have fallen by approximately 1.9 million barrels in the week ending December 20.
Market Expectations for US Crude Inventories
According to the Reuters poll, gasoline and distillate inventories are also expected to decline, with falls of 1.1 million barrels and 0.3 million barrels respectively. These declines would be a welcome development for oil markets, which have been grappling with concerns about oversupply.
Conclusion
In conclusion, while oil prices experienced minor fluctuations on Friday, the market is poised to post gains on a weekly basis. The World Bank’s revised forecast for China’s economic growth provides some much-needed optimism, and Beijing’s fiscal stimulus efforts are likely to have a positive impact on oil demand. However, a stronger US dollar continues to cap gains, highlighting the complex dynamics at play in global oil markets.