Oil prices rose slightly on Thursday as investors factored in expectations of strong winter fuel demand despite large U.S. fuel inventories and macroeconomic concerns.
Brent crude futures rose 35 cents, or 0.5%, to $76.51 a barrel. U.S. West Texas Intermediate crude futures rose 30 cents, or 0.4%, to $73.62.
Both benchmarks fell more than 1% on Wednesday as a stronger dollar and a larger-than-expected rise in U.S. fuel inventories weighed on prices.
“The oil market continues to grapple with opposing forces — seasonal demand supporting bulls and macroeconomic data supporting a stronger U.S. dollar in the medium term… which could put a cap on bulls from advancing further,” said Kelvin Wong, senior market analyst at OANDA.
JPMorgan analysts expect January oil demand to expand by about 1.4 million barrels per day (bpd) year-on-year to 101.4 million bpd, driven primarily by increased use of heating fuels in the Northern Hemisphere.
“The analysts expect global oil demand to remain strong throughout January, driven by colder-than-usual winter conditions that boost heating fuel consumption and an early start to travel activity in China for the Lunar New Year holiday.”
Oil dips as US fuel inventories rise
The market structure in Brent futures also suggests traders are becoming more concerned about tighter supply at the same time as demand is rising.
The Brent front-month premium to the six-month contract hit its widest since August on Wednesday. The breadth of such a decline, when futures for immediate delivery are higher than futures for later delivery, typically signals that supply is tightening or demand is growing. However, official Energy Information Administration data showed US gasoline and distillate stockpiles rose last week.
Oil prices balance seasonal demand, high inventories
Light crude oil futures are trading at a near-flat level after confirming a bearish closing price reversal pattern early Thursday. This suggests a short-term pullback is possible, with potential downside targets including the 200-day moving average at $72.34 and the 50% long-term retracement level at $71.10. Conversely, a break above $75.29 would negate the reversal, resuming the uptrend with $77.36 as the next target. Light crude oil futures are trading at $73.45, up $0.13 or +0.18%.
Market balances demand as US inventories rise
Oil markets remained steady on Thursday as traders weighed strong seasonal demand against a stronger US dollar and an unexpected rise in US fuel inventories. Official Energy Information Administration data showed gasoline and distillate inventories increased, adding downward pressure on prices. Wednesday’s session saw oil benchmarks lose more than 1% as the dollar strengthened, driven by higher Treasury yields. “Seasonal demand is supporting bulls, but macroeconomic data and a strong dollar are limiting further advances,” said Kelvin Wong, senior market analyst at OANDA.
Demand outlook remains positive for January
Despite inventory concerns, the demand outlook remains strong. JPMorgan analysts expect global oil demand in January to rise by 1.4 million barrels per day (bpd) year-on-year to 101.4 million bpd. The growth is supported by increased heating fuel consumption during colder-than-usual winter conditions and travel demand in China ahead of the Lunar New Year.
The structure of the Brent futures market also reflects supply-tightening concerns. The premium of the Brent forward monthly contract to the six-month contract widened to its largest level since August, a sign of strengthening pullbacks and potential supply constraints.
Oil Prices Expected to Rise despite Inventory, Dollar Pressure
Saudi Arabia’s crude oil supply to China is expected to fall in February after official selling prices to Asia rose. This would be the first increase in three months and reflects Saudi Arabia’s efforts to balance tighter supplies with strong Asian demand.
Market Outlook: Neutral to slightly bullish
WTI is expected to trade in a range of $71.10 to $77.36 in the near term. The next important move for the market will depend on macroeconomic factors and further details on fiscal measures from China. While rising inventories and a stronger US dollar are exerting downward pressure, strong seasonal demand and tighter supplies provide a bullish backdrop.
A sustained break above $75.29 would signal a continuation of the uptrend, with $77.36 as the next target. Additionally, holding above the 200- and 50-day moving averages is likely to provide strong support for prices.
U.S. President Joe Biden is expected to announce new sanctions targeting the Russian economy this week, according to a U.S. official. The move is part of efforts to bolster Ukraine’s war effort against Russia before President-elect Donald Trump takes office on Jan. 20. The main target of the sanctions so far has been Russia’s oil industry.
The dollar strengthened on Thursday, supported by a rise in Treasury yields ahead of Trump’s White House. Looking ahead, OANDA’s Wong expects WTI to hover in a range of $67.55 to $77.95 through February as the market awaits more clarity on the Trump administration’s policies and new fiscal stimulus measures from China, signaling strengthening weakness and potential supply constraints.
