Oil Prices Rise on Demand Expectation, Weak US Dollar

Oil prices climbed due to several bullish factors, including the likelihood of US production disruptions from extreme cold, a depreciating US dollar, OPEC’s elevated demand projections, and escalating tensions in the Middle East.

Brent rose 0.60% to $78.35 per barrel from $77.88 a barrel.  The American benchmark, West Texas Intermediate (WTI), traded at the same time at $73.13 per barrel, down 0.89% from Wednesday’s close of $72.48 per barrel.

OPEC’s monthly oil market report released on Wednesday showed that oil demand in 2025 would rise by 1.8 million barrels per day (bpd) year-over-year.  However, the report cautioned about uncertainties, including global economic trends, which could influence these forecasts.

As for supply, non-OPEC output is expected to grow by 1.34 million barrels per day (mbpd) this year and 1.27 million barrels per day in 2025. As a result, demand for OPEC oil in 2024 will be 28.5mbpd and 29mbpd in 2025. This is well above the 26.7mbpd OPEC produced in December (excluding Angola), which suggests that OPEC sees the market in a fairly large deficit this year.

The surge in prices is also partly attributed to investor concerns about the impact of the intense cold weather in the US on oil production and refining facilities. States including Iowa, Missouri, and Texas are experiencing severe cold and snowstorms, with temperatures dropping below zero.

The National Weather Service (NWS) described these as ‘all-time lows,’ forecasting that the cold spell would extend to 26 states across the central and north-eastern US in the upcoming days.

A weaker US dollar also put prices under pressure, with the greenback falling 0.18% to 103.01 on Thursday. If the dollar depreciates against other currencies, dollar-indexed crude oil becomes cheaper for holders of other currencies and exerts upward pressure on prices.

Meanwhile, data revealing bearish demand in the US limited gains. The American Petroleum Institute (API) late Wednesday announced an estimated increase of nearly 483,000 barrels in US crude oil inventories, against the market expectation of a fall of 2.4 million barrels.

If the US Energy Information Administration (EIA) confirms the stock build when it releases actual data on oil stocks later on Thursday, prices could fall. Naira Somersaults as CBN Makes Zero FX Injection

Market analysts said oil came under pressure yesterday as broader markets continue to question the Fed’s path this year when it comes to cutting rates. This is particularly after US retail sales data for December came in above expectations yesterday. As a result, ICE Brent settled a little more than 0.5% lower.

Shifting views on Fed action has been more than enough to offset concerns in the Red Sea, ING commodities strategists said in a note on Thursday.

Another commercial vessel was attacked yesterday, taking the total tally so far this week to three. As a growing number of ships avoid the Red Sea, it is disruptive to trade flows, according to ING note.

US oil inventory numbers overnight from the API were bearish. US crude oil inventories increased by a marginal 483k barrels last week.

However, products saw large builds once again with gasoline and distillate stocks growing by 4.86m barrels and 5.21m barrels respectively. The more widely followed EIA inventory report will be released later today.

OPEC released its latest monthly market report yesterday which included its first estimates for 2025. The group left its demand growth forecast for 2024 unchanged at 2.25m b/d, while for 2025, demand is forecast to grow by 1.85m b/d.  

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