Oil prices closed more than 1% higher on Friday, buoyed by a larger-than-expected drawdown in U.S. crude inventories, while trading volumes remained low ahead of year-end.
Key Details:
Price Movements:
Brent crude futures rose by 91 cents (1.2%) to settle at $74.17 per barrel.
U.S. West Texas Intermediate (WTI) crude futures increased by 98 cents (1.4%) to $70.60 per barrel.
On a weekly basis, both Brent and WTI recorded gains of approximately 1.4%.
Inventory Data:
According to the U.S. Energy Information Administration (EIA), crude oil inventories fell by 4.2 million barrels for the week ending December 20. This decline was attributed to increased refinery activity and heightened fuel demand during the holiday season.
Analysts had anticipated a 1.9 million-barrel draw, while the American Petroleum Institute (API) had reported a 3.2 million-barrel draw earlier in the week.
Market Sentiment:
Optimism surrounding Chinese economic growth has also contributed to expectations for higher oil demand in the coming year. The World Bank recently raised its forecast for China’s economic growth in 2024 and 2025.
Chinese authorities are set to issue special treasury bonds worth 3 trillion yuan (approximately $411 billion) next year to stimulate the economy.
Geopolitical Factors:
The ongoing Russia-Ukraine conflict has resurfaced as a significant concern for energy markets, with NATO announcing an increase in its presence in the Baltic Sea following recent tensions.
Events such as Finland seizing a ship carrying Russian oil and rising natural gas prices in the Netherlands and the UK have added to market volatility.
Middle East Tensions:
Recent military actions in the Middle East, including Israeli raids in Gaza and strikes against the Houthi movement in Yemen, have raised concerns, although analysts suggest these may not significantly impact oil prices in the near term.
The potential for sanctions enforcement under a new U.S. administration is viewed as a more substantial risk in the region.