Oil prices rose on Friday, poised to achieve their first weekly increase in two months. This surge came as the International Energy Agency (IEA) delivered a bullish forecast for oil demand in the coming year, coupled with a weaker dollar. The Brent futures climbed 21 cents to reach $76.82 per barrel, while the U.S. West Texas Intermediate (WTI) crude saw a 20 cent increase, reaching $71.78. Both benchmarks are expected to secure a modest weekly gain following the U.S. Federal Reserve’s announcement earlier this week, signaling potential interest rate cuts in the future.
The recent dovish pivot by the Federal Reserve has led analysts to predict improved liquidity conditions and a potential rise in oil prices. Kelvin Wong, an analyst at OANDA in Singapore, stated, Oil prices may see a bit of a ‘demand pull’ due to improved liquidity conditions after the Fed’s dovish pivot.
The decline of the dollar, which reached a four-month low on Thursday, played a significant role in the rise of oil prices. A weaker dollar translates to cheaper dollar-denominated oil for foreign buyers, thereby increasing demand.
According to the monthly report released by the IEA, world oil consumption is projected to grow by 1.1 million barrels per day (bpd) in 2024. This figure represents an increase of 130,000 bpd from the IEA’s previous forecast. The improved outlook for U.S. demand and the decline in oil prices contributed to this optimistic projection. However, it is worth noting that the IEA’s forecast remains below half of the anticipated demand growth of 2.25 million bpd presented by the Organization of the Petroleum Exporting Countries (OPEC).
In recent weeks, weak economic data from China, the world’s second-largest oil consumer, has exerted downward pressure on oil prices. The country’s statistics bureau reported that refinery runs in November reached their lowest level since the beginning of 2023. Margin pressure on non-state owned refiners has compelled them to reduce production, while sluggish diesel consumption has affected national fuel demand. Nevertheless, the data also revealed an unexpectedly positive performance in industrial output and improving retail sales, providing some relief to market sentiment amid China’s slow post-COVID economic recovery.
In conclusion, oil prices have experienced a notable rise, positioning themselves for the first weekly increase in two months. Factors such as the bullish forecast from the IEA on oil demand for next year and the weakening of the dollar have contributed to this growth. Additionally, the U.S. Federal Reserve’s announcement regarding potential interest rate cuts has further boosted market sentiment. However, weak economic data from China continues to exert pressure on oil prices. The global oil market remains uncertain, influenced by various economic factors and geopolitical developments.
