U.S. Crude Oil Rises 3% on Factors Impacting Global Demand Outlook

On Thursday, U.S. crude oil experienced a 3% increase, building on the gains from the previous session, influenced by a moderately improved global demand outlook for 2024 and a weakened dollar.

The West Texas Intermediate (WTI) contract for January climbed $2.11, or 3.04%, settling at $71.58 a barrel, while the Brent contract for February rose $2.35, or 3.16%, settling at $76.61 a barrel.

A contributing factor to Wednesday’s 1% higher oil prices was a significant withdrawal of 4.3 million barrels from U.S. crude inventories, surpassing expectations.

The International Energy Agency (IEA) released a statement on Thursday, indicating a slight upward revision in its global oil demand forecast for 2024. The agency now anticipates a growth of 1.1 million barrels per day, compared to its previous forecast of 930,000 barrels per day.

The Federal Reserve’s announcement on Wednesday, acknowledging progress in addressing inflation concerns and signaling three rate cuts for 2024, provided reassurance to traders. The potential positive impact on oil demand next year stems from the fact that higher interest rates, which were signaled to be cut, tend to slow economic growth, influencing crude prices.

Moreover, the U.S. dollar reached a four-month low on Thursday after indications from the Fed that rate hikes were concluded. A weakened dollar tends to make oil more affordable, potentially boosting demand.

This week’s gains mark a brief respite for oil prices, which experienced a significant decline, dropping over $20 from September highs through Wednesday’s close. The market has been grappling with the intersection of record U.S. production and a weakening Chinese economy, leading to concerns about oversupply.

Despite promises from several OPEC members and key allies, including Russia, to cut supply by 2.2 million barrels per day in the first quarter of 2024, traders remain skeptical about the voluntary nature of these cuts. OPEC, in its December market report, attributed the dramatic decline in crude prices to “exaggerated concerns about oil demand growth.”

The IEA expects demand growth to slow by half in 2024. The U.S., Brazil, and Guyana are contributing to “record-breaking supply,” while production growth outside OPEC is projected to slow next year but still exceed demand at 1.2 million barrels per day. The IEA suggests that this continued rise in output, combined with slowing demand growth, will complicate efforts by key producers to defend market share and maintain elevated oil prices.

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