Oil prices continued their upward trajectory on Monday, reaching their highest levels since October 2024. The rally was driven by colder-than-normal weather, signs of recovering demand in Asia, and market anticipation of stricter sanctions on Russian and Iranian crude exports.
Brent crude futures climbed 0.6% to $77 a barrel, while U.S. West Texas Intermediate (WTI) crude advanced 0.7% to $74.45 per barrel. Both benchmarks have sustained a multi-session rally, bolstered by global factors reshaping the energy landscape.
Colder weather across the Northern Hemisphere has significantly increased energy consumption, particularly in Europe and the United States. Bjarne Schieldrop, an analyst at SEB, noted that the higher demand for heating fuel, combined with a rise in natural gas prices and refining margins, has supported crude prices.
The situation in Asia is also influencing market dynamics. Saudi Aramco, the world's largest oil exporter, announced its first price hike in three months for February crude deliveries to Asian buyers, signaling expectations of stronger regional demand.
China, grappling with economic challenges, has introduced fiscal stimulus measures aimed at revitalizing its economy. These steps are expected to boost energy consumption, further supporting oil prices.
A weaker U.S. dollar has added momentum to the rally, as it makes dollar-denominated commodities more affordable for international buyers. The dollar's decline on Monday followed reports that President-elect Donald Trump is considering import tariffs on critical goods, adding to the uncertainty around U.S. economic policy.
Geopolitical factors remain a key driver of market sentiment. The Biden administration is reportedly preparing additional sanctions targeting Russian oil revenues, including measures against tankers carrying Russian crude. Meanwhile, analysts anticipate the Trump administration will adopt a more hawkish stance on Iran, potentially leading to tighter sanctions.
Goldman Sachs projects that Iranian oil production could fall by 300,000 barrels per day by the second quarter of 2025, reducing output to approximately 3.25 million barrels per day. Such restrictions would further tighten global supply and push prices higher, though they could also open opportunities for increased production by other OPEC members.
Middle Eastern crude grades are gaining prominence as Asian buyers seek alternatives amid Western sanctions on Russian and Iranian oil. The Brent/Dubai spread recently turned negative, with Dubai crude trading at a premium-a rare occurrence that highlights the shifting demand dynamics.
Natural gas prices also surged on expectations of increased heating demand and possible production constraints due to adverse weather. February natural gas futures jumped 9.2% to $3.66 per million British thermal units.
Despite the bullish sentiment in the oil market, the Biden administration announced plans to ban most new offshore oil and gas drilling. President Joe Biden stated that his decision reflects concerns over environmental risks and the need for sustainable energy practices.
"This decision balances our energy needs with the long-term health of our coastal ecosystems and the communities that depend on them," Biden said in a statement.
Minutes from the Federal Reserve's December meeting, set to be released Wednesday, and the U.S. payrolls report due Friday could offer further clues on the trajectory of interest rates and their impact on energy demand.