Oil prices surge to six-month highs

Oil prices gained strength on Wednesday, with WTI price surging from $78.4 per barrel to $81.0 per barrel, its highest value in six months. If oil prices retreat, they may encounter support near $72.9 per barrel, while resistance may be found near $84.6 per barrel.

Oil prices have been gaining strength these past few weeks as cold weather in the US and the EU raises oil demand. In addition, supply concerns have been driving oil prices up.

US crude oil inventories released on Wednesday showed an unexpected drop in US crude stockpiles, boosting oil prices. The US Energy Information Administration reported a weekly crude stockpile draw of 2.0M barrels for the week to January 10, against expectations of a much smaller drop by 1.0M barrels and following a drop of 1.0M barrels the week before.

The US Energy Information Administration forecasted on Tuesday that oil demand in the US would remain steady at 20.5 million barrels per day (bpd) in 2025 and 2026. At the same time, the EIA report revised upward the US oil output for 2025 to 13.55 million bpd, from its previous forecast of 13.52 million bpd.

Increasing Western sanctions against Russia and Iran have been paying off, limiting the oil output of these countries. US President Joe Biden imposed the broadest package of sanctions on Russian oil exports so far on Friday, causing oil prices to surge. The outgoing US President’s administration is targeting Russia's oil and gas revenues and is reportedly planning to impose more sanctions ahead of Donald Trump's inauguration on 20 January. In addition, incoming US President Donald Trump is expected to reinforce restrictions on Iran's oil exports, raising oil supply concerns. 

OPEC+ has announced that it will extend its voluntary production cuts until the end of the first quarter of 2025, however. Oil prices have been under pressure and the cartel is limiting production in an attempt to raise oil prices. 

Oil prices are kept in check by high central banks’ interest rates. The US Federal Reserve cut interest rates by 25 basis points at its latest meeting to a target range of 4.25% to 4.50%.  In his press conference after the policy meeting, Fed Chair Jerome Powell delivered a hawkish message, emphasizing the need to be cautious about further rate cuts. 

Concerns of a broadening conflict in the Middle East have been boosting oil prices in the past year. Tensions between Israel and Lebanon have cooled after the ceasefire deal, but hostilities between Israel and Hamas continue in the Gaza area. In addition, the situation between Russia and Ukraine remains critical.

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Written by:
Myrsini Giannouli

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