Crude oil prices saw a moderate rally on last Friday, with February West Texas Intermediate (WTI) crude oil (CLG25) rising by $0.98, or 1.41%, while February RBOB gasoline (RBG25) gained $0.0139, or 0.71%. The price increases came amid a weaker U.S. dollar, positive economic signals from China, and a larger-than-expected decline in U.S. crude inventories.
Crude oil prices were further supported by reports earlier in the last week indicating that China would implement new economic stimulus measures aimed at reviving its economy. The additional boost came after the U.S. Energy Information Administration (EIA) reported a significant drop in crude inventories, which exceeded market expectations.
Geopolitical factors also played a role in driving oil prices higher. Tensions continue to rise globally, especially after U.S. President-Elect Donald Trump’s recent threat to take control of the Panama Canal if transit rates are not reduced. His remarks, alongside ongoing threats of tariffs and increased sanctions, have added to the uncertainty in global oil markets.
Furthermore, the prospect of new sanctions targeting Iranian and Russian crude exports is also supporting oil prices. Trump’s national security adviser nominee, Mike Walz, has signaled a return to “maximum pressure” on Iran, while the Biden administration is reportedly considering harsher sanctions on Russian crude oil, which could tighten global supply.
However, bearish signals are also emerging. A rise in the amount of crude oil stored on tankers is putting downward pressure on prices. It reported a 7% increase in crude oil storage on tankers that have been stationary for over seven days, bringing the total to 70.2 million barrels as of December 20, 2024.
On the supply side, OPEC+ has helped sustain the market by delaying a planned production increase and scaling back its output cuts. The UAE also announced that it would delay its planned 300,000-barrel-per-day production increase from January to April. OPEC+ had previously agreed to gradually restore 2.2 million barrels per day of output through 2025, but this timeline has now been extended to September 2026. OPEC’s November crude production rose by 120,000 bpd to 27.02 million bpd.
The ongoing conflict in Ukraine is another supportive factor for crude prices. Russia’s recent launch of a hypersonic missile into Ukraine, coupled with escalating threats from Russian President Vladimir Putin regarding potential missile strikes on Kyiv, has further heightened tensions. Putin has also approved an updated nuclear doctrine that expands the circumstances under which Russia could use nuclear weapons, adding to market uncertainty.
On the demand side, however, China’s weakening oil consumption is a bearish factor. China’s November apparent oil demand fell by 2.14% year-on-year to 14.013 million bpd, and total demand for January-November decreased by 3.26% year-on-year. As the world’s second-largest crude consumer, any slowdown in China’s demand impacts global oil prices.
Meanwhile, Russian crude exports have also declined, providing support to oil prices. Vessel-tracking data showed a drop of 170,000 bpd in Russian exports, down to 2.97 million bpd in the week ending December 15.
The latest EIA report was a mixed bag for oil and products. On the bullish side, EIA crude inventories fell by 4.24 million barrels, much more than the anticipated 600,000-barrel drop. Distillate stockpiles also fell by 1.69 million barrels, surpassing expectations. In contrast, gasoline inventories unexpectedly rose by 1.63 million barrels, contrary to predictions of a 500,000-barrel draw.
The report further showed that U.S. crude oil inventories as of December 20, 2024 were 6.1% below the seasonal five-year average, while gasoline and distillate inventories were 2.8% and 8.2% below their respective five-year averages. U.S. crude production in the week ending December 20, 2024 dipped slightly by 0.1% to 13.585 million bpd, remaining just below the record high of 13.631 million bpd set in early December.
Finally, Baker Hughes reported that the number of active U.S. oil rigs remained unchanged at 483 as of December 27, 2024 still modestly above the 477-rig low posted last month. The number of active rigs has decreased significantly from the 627-rig peak seen in December 2022, reflecting a slowdown in new drilling activity.