U.S. crude oil prices rose slightly on Thursday, with the West Texas Intermediate (WTI) December contract closing at $68.70 per barrel, up 27 cents or 0.4%, while Brent crude futures for January settled at $72.56, an increase of 28 cents or 0.4%. The uptick came amid a steep drawdown in U.S. fuel stocks, despite mounting concerns over a projected supply surplus for next year and broader economic headwinds.
According to the International Energy Agency (IEA), global crude supplies are expected to outpace demand by over one million barrels per day in 2025, driven by strong production growth in the U.S. The agency's forecast weighed heavily on market sentiment, with UBS cutting its price outlook for Brent crude to $80 per barrel from a previous estimate of $87, citing weaker-than-expected demand from China, the world's largest crude importer.
Meanwhile, U.S. gasoline stocks experienced a substantial decline of 4.4 million barrels last week, the Energy Information Administration (EIA) reported, against analysts' expectations for a modest 600,000-barrel build. The draw brought gasoline inventories down to 206.9 million barrels, their lowest level since November 2022. Distillate stockpiles, encompassing diesel and heating oil, also dropped by 1.4 million barrels, despite forecasts of a 200,000-barrel increase. U.S. gasoline futures closed 0.8% higher, though heating oil futures slid by 0.3% following a temporary spike.
On the other hand, U.S. crude inventories rose by 2.1 million barrels, well above market expectations for a 750,000-barrel increase. The larger-than-anticipated build further underscored concerns over potential oversupply, adding pressure to crude prices.
"The premium of the front-month WTI contract over the second month narrowed to its smallest margin since June," analysts noted, signaling a potential easing of perceived tight supply for prompt delivery. Such market movements reflect a complex interplay between immediate supply and demand expectations.
OPEC's recent revisions to its demand growth forecast added another layer of uncertainty. The cartel cut its demand growth projection for the fourth consecutive month, highlighting continued weakness in major markets such as China and India. This adjustment aligns with broader concerns about slowing demand growth and underscores the challenges faced by oil producers amid shifting market dynamics.
Kelvin Wong, senior market analyst at OANDA, highlighted the impact of macroeconomic factors on demand. "A rally in U.S. 10-year Treasury yields and a surge in the 10-year break-even inflation rate to 2.35% increase the odds of a shallow Fed interest-rate-cut cycle heading into 2025, reducing liquidity to stoke an increase in demand for oil," Wong said.
Dennis Kissler, senior vice president of trading at BOK Financial, commented on the role of U.S. politics in shaping energy policy and market sentiment. "Crude futures are trying to establish an equilibrium, with a rising U.S. dollar index creating a further headwind, along with a Trump administration that will now control Congress, likely to roll back much of the Biden administration's energy policies," Kissler noted in a research note.
The dollar's recent strength, which hit a one-year high, has further complicated the picture, making dollar-denominated oil more expensive for foreign buyers and potentially suppressing demand. "The dollar's rise creates headwinds, as it impacts purchasing power," market participants acknowledged.
Giovanni Staunovo, an oil strategist at UBS Switzerland AG, summarized the outlook for next year. "Overall, we see the oil market as balanced to marginally oversupplied next year," Staunovo wrote, citing lower demand growth estimates and ongoing market adjustments.
