Oil prices rally on cold weather demand

Oil prices rallied on Thursday, with WTI prices rising from $73.4 per barrel to $74.4 per barrel. If oil prices retreat, they may encounter support near $71.1 per barrel, while resistance may be found near $75.4 per barrel.

Oil prices have been gaining strength since last week as cold weather in the US and the EU raises oil demand. In addition, supply concerns have been driving oil up. Increasing Western sanctions against Russia and Iran have been paying off, limiting the oil output of these countries. On Tuesday, a report by Bloomberg stated that OPEC oil production fell by 120 thousand barrels per day in December, boosting oil prices. 

US crude oil inventories released on Wednesday, however, showed a lower draw in US crude stockpiles than originally anticipated, putting pressure on oil prices. The US Energy Information Administration reported a weekly crude stockpile draw of 1.0M barrels for the week to January 3, against expectations of a much larger drop by 1.8M barrels and following a drop of 1.2M barrels the week before.

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. Powell stated that the Fed’s approach will remain data-driven and hinted that the pace of future rate cuts will be slower. In addition, the Fed’s latest dot plot indicated that only two rate cuts will take place in 2025, down from four projected in September.

Concerns of a broadening conflict in the Middle East have been boosting oil prices in the past year. The civil war in Syria has been rekindled, further destabilizing the region. 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. 

Reports that President-elect Donald Trump’s tariffs will be more moderate than previously anticipated, caused turmoil in markets on Monday. According to the Washington Post, Trump is considering imposing international tariffs that are only related to sectors deemed critical to national or economic security. Trump, however, later denied these rumors, stating that the claims by the Washington Post were completely false. 

The uncertainty surrounding Trump’s proposed tariffs rose even more on Wednesday after CNN reported that the incoming US President is considering declaring a national economic emergency to provide legal justification for the new tariffs. The news agency cited four unidentified sources familiar with the matter. According to the CNN article, the declaration of a national emergency would allow Trump to construct a new tariff program by using the International Economic Emergency Powers Act, known as IEEPA.  

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Written by:
Myrsini Giannouli

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