Crude oil prices advanced on Friday, buoyed by optimism over China's economic recovery and expectations of strong demand in the United States. Both Brent and West Texas Intermediate (WTI) benchmarks were on track for modest weekly gains, bolstered by reports of declining U.S. crude inventories and China's anticipated fiscal stimulus efforts.
Brent crude rose 1%, or 74 cents, to $74 per barrel by 1404 GMT, while WTI gained 1.15%, or 80 cents, to trade at $70.42 per barrel. For the week, Brent and WTI were set to rise by 1.5% and 1.4%, respectively, marking a recovery from earlier losses.
Analysts highlighted several drivers for the uptick in prices. Giovanni Staunovo, an analyst at UBS, pointed to expectations of a drawdown in U.S. crude stocks and potential demand boosts from cold weather. "Probably we are moving back up again in anticipation of a crude draw in the U.S.," Staunovo said.
Preliminary data from the American Petroleum Institute (API) indicated a substantial draw of 3.2 million barrels in U.S. crude inventories last week, surpassing analysts' expectations of a 1.9 million barrel decline. The official figures from the U.S. Energy Information Administration (EIA) are due later today, delayed due to the Christmas holiday.
China, the world's largest oil importer, played a significant role in fueling market optimism. The World Bank raised its growth forecast for China's economy in 2024 and 2025, and Chinese authorities announced plans to issue special treasury bonds worth 3 trillion yuan ($411 billion) to stimulate economic activity.
The World Bank raised its GDP forecast for China for both this year and next, while China also revised its 2023 GDP growth upward by a substantial 2.7%, contributing to increased optimism about future demand.
However, market gains were tempered by a stronger U.S. dollar, which makes oil more expensive for buyers using other currencies. The dollar's strength is tied to expectations that incoming policies under President-elect Donald Trump will stimulate growth and drive inflation higher.
Despite the weekly rally, oil prices remain on course for an annual decline, influenced by multiple factors, including persistent bearish bets on OPEC+ actions and the absence of significant supply disruptions from the Middle East. Escalating tensions between Iran and Israel earlier in the year had raised fears of supply shocks, but no disruptions materialized.
"The market has adjusted to geopolitical risks in the Middle East, and traders have concluded that no major players in the region want to risk an oil supply disruption," said Justin Crump, CEO of risk advisory firm Sibylline.
Looking ahead, analysts anticipate moderate demand growth in 2025 amid structural and cyclical headwinds. ING's Patterson and Ewa Manthey noted, "The oil market is set to see fairly modest demand growth once again in 2025, with strong non-OPEC supply growth and significant spare production capacity from OPEC providing comfort to the market."
