Oil prices rose on Friday and were on track for a third straight weekly gain as traders focused on the prospect of supply disruptions due to further sanctions on Russia and Iran.
Brent crude futures rose $1.90, or 2.47 percent, to $78.82 a barrel by 1044 GMT, hitting their highest in nearly three months. U.S. West Texas Intermediate (WTI) crude futures were up $1.86, or 2.52 percent, at $75.78. In the three weeks to Jan. 10, Brent crude rose 8 percent while WTI jumped 9 percent.
“There are several factors today. In the longer term, the market is focused on the prospect of additional sanctions. In the short term, the cold weather across the U.S. is pushing up fuel demand,” said Ole Hansen, head of commodity strategy at Saxo Bank.
Ahead of the inauguration of US President-elect Donald Trump on January 20, expectations are growing of potential supply disruptions due to tougher sanctions against Iran and Russia while oil inventories remain low.
US President Joe Biden plans to announce new sanctions targeting the Russian economy before Trump takes office, which could occur even earlier. The main target of the sanctions so far has been the Russian oil industry.
The US National Weather Service expects central and eastern parts of the country to see below-average temperatures. Extreme cold has hit many parts of Europe, and analysts at JPMorgan expect the region to continue experiencing a colder-than-usual start to the year, which will likely boost demand. “We expect a significant year-on-year increase in global oil demand of 1.6 million barrels per day in the first quarter of 2025, driven primarily by demand for heating oil, kerosene and liquefied petroleum gas,” they said in a note on Friday.
Oil prices rise as demand surges amid cold weather
Early Asian trading saw oil prices rise, which were on track for a third straight week of gains as demand for heating fuels increased due to freezing conditions in parts of the United States and Europe.
This week, the premium of the monthly Brent contract over the six-month contract hit its highest level since August, which could be a sign of supply constraints during a period of strong demand.
Brent crude futures rose 24 cents, or 0.3%, to $77.16 a barrel. At $74.18, U.S. West Texas Intermediate (WTI) crude futures were up 26 cents, or 0.4%.
WTI has risen 6.9% and Brent has gained 5.9% over the three weeks to Jan. 10.
Oil prices have rebounded despite the U.S. dollar rising for six straight weeks. In general, a stronger dollar affects prices because it makes it more expensive to buy crude outside the United States.
US President Joe Biden plans to announce new sanctions targeting the Russian economy this week to bolster Ukraine’s military efforts against Moscow before President-elect Donald Trump takes office on January 20. These sanctions could further hurt supplies. Russia’s oil industry has been a major focus of the sanctions so far. The spread between the price of a barrel of Brent futures and the price of a barrel of six-month oil hit its highest since August this week, suggesting tight supply at a time of rising demand. Bank’s Hansen said inflation concerns were also boosting crude prices. Investors are increasingly concerned about Trump’s planned tariffs, which could lead to higher inflation. A popular trade to hedge against rising consumer prices is buying oil futures.
Oil prices have risen despite a six-week rally in the US dollar, which has made crude more expensive outside the US.
Slowing US Oil Production Growth Raises Concerns
One of the biggest misconceptions in the oil market is the significant growth in non-OPEC+ oil supply going forward, particularly from the United States. The consensus within the oil market has been that strong US production growth is set to continue for the foreseeable future.
The IEA, of course, is the poster child for this consensus. The IEA expects non-OPEC+ sources to produce around 1.5 million barrels per day in 2025, with the United States contributing 0.62 million barrels.
However, as I have detailed here, many signs point to a slowdown in US production growth going forward.
Not only that, but we are also likely to see minimal US production growth for at least the next three to five years. While these dynamics may not have dramatic implications for oil prices in 2025, they will certainly impact the rest of the decade. As such, it’s worth taking a moment to reframe some of the signals that point to a slowdown in U.S. production.
On the face of it, the EIA’s monthly production data (through October) shows U.S. oil production hitting an all-time high of 13.45 million barrels per day, representing a growth of just 0.30 million barrels per day compared to October 2023.
One should take these numbers with a grain of salt. In fact, when we adjust the EIA’s monthly production figures for their own adjustment factor, we can see that actual oil production in 2024 has been flat. In fact, adjusted production has barely moved over the past 24 months after being overstated for most of 2023.
