Oil surges on US crude draw

Oil prices surged on Thursday, with WTI price touching the $74 per barrel level. If WTI price declines, it may encounter support near $70 per barrel, while resistance may be found near $75.1 per barrel.

US crude oil inventories released on Thursday showed a large draw in US crude stockpiles, boosting oil prices. The US Energy Information Administration reported that weekly crude stocks fell by 2.5M barrels for the week to January 12th, falling short of expectations of a drop by 0.6M barrels. 

Oil demand outlook increased on Thursday, as the International Energy Agency (IEA) joined the producer group OPEC is forecasting strong growth in global oil demand. The IEA monthly report stated that oil demand is expected to grow by 1.24M barrels per day in 2024, up by 180K barrels per day from its previous projection. OPEC also reported a high oil demand forecast on Wednesday, expecting a growth in demand of 2.25M barrels per day this year.

Supply concerns also boost oil prices, as the crisis in the Gaza area threatens to disrupt oil distribution. Geopolitical tensions are rising in the Red Sea, spilling over the region from the war in Gaza. Tensions around the Red Sea area have been rising in the past few weeks, raising concerns that hostilities may spread in the Middle East, affecting oil supply and distribution. 

Iran-backed Houthi militants are attacking commercial vessels in the Red Sea. The US and the UK launched a coordinated action against Houthi rebels in Yemen on Thursday night. The coalition delivered a series of air and sea strikes against Houthi targets in Yemen, risking retaliation from Iran. The US put Houthi rebels back on its list of terrorist groups on Wednesday, as the militants attacked their second US-operated vessel in the Red Sea region this week.

China’s poor economic outlook is increasing concerns of reduced oil demand, putting a lid on oil prices, despite increasing geopolitical risks. Weak economic growth in China raised concerns about future demand on Wednesday, pushing oil prices down. China’s GDP data released on Wednesday were disappointing, showing that the country’s economy remains sluggish. China’s economy expanded by 5.2% year-on-year in the final quarter of 2023, which fell short of expectations, lowering the oil demand outlook. 

Oil prices are kept in check by a strong US dollar and high-interest rates. Most major central banks, however, are hitting pause on rate hikes, boosting oil prices. The Fed kept interest rates unchanged at its December meeting, within a target range of 5.25% to 5.50%. Market expectations of future rate cuts increase oil demand outlook, boosting oil prices. In addition, OPEC+ producers have agreed to voluntary cuts of over 2 million barrels per day to boost oil prices, extending already existing output cuts into the first quarter of 2024 and adding even more.

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Written by:
Myrsini Giannouli

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