Oil Prices Extend Rally to Highest in Over Two Months
Oil extended a rally that has brought it to the highest in more than two months as shrinking US crude stockpiles and a risk-on tone in broader markets overshadowed signs of a misfiring Chinese economy.
West Texas Intermediate (WTI) Climbs to Highest Closing Price Since Mid-October
West Texas Intermediate (WTI) climbed for the fifth straight session, approaching US$74 a barrel and settling at the highest closing price since mid-October. A push above key technical levels early last week spurred fresh buying from quantitative funds, while strength in equity markets and a slump in the US dollar aided Friday’s (Jan 3) gain.
WTI’s Prompt Spread Firms to 75 US Cents a Barrel
WTI’s prompt spread firmed to about 75 US cents a barrel in a sign of a tightening supply outlook.
Capping Oil’s Advance: Concerns Over China’s Economic Struggles
Capping oil’s advance, the onshore yuan weakened past a level that China had been defending throughout December, fanning concerns over the nation’s economic struggles.
Uncertainty Ahead: Oversupply, Opec+ Production, and Lacklustre Demand
The outlook for 2025 remains uncertain, however, with expectations for oversupply, the possible revival of idled Opec+ production and lacklustre demand from top importer China. The return of Donald Trump to the White House later this month also adds unpredictability for global markets.
Middle Eastern Barrels Gain in Value
In a positive sign for prices, some Middle Eastern barrels have gained in value in recent days as a mix of robust refinery demand and disruption to flows from Iran and Russia by sanctions pushed regional values to a rare premium to the global Brent benchmark.
Goldman Sachs Sees Oil Prices as Undervalued
“Oil prices are a few dollars undervalued right now,” Daan Struyven, head of commodities research at Goldman Sachs Group, said in a Bloomberg television interview. “Global energy demand will continue to rise very significantly.” BLOOMBERG
Conclusion
Despite concerns over China’s economic struggles and uncertainty in the global market, oil prices have extended their rally to reach the highest in over two months. A tightening supply outlook and a risk-on tone in broader markets have driven the increase, with some Middle Eastern barrels gaining in value. However, the outlook for 2025 remains uncertain, with expectations of oversupply, Opec+ production, and lacklustre demand from top importer China.
FAQs
Q: What is driving the rally in oil prices?
A: Shrinking US crude stockpiles and a risk-on tone in broader markets are driving the rally in oil prices.
Q: What is the outlook for 2025?
A: The outlook for 2025 remains uncertain, with expectations of oversupply, Opec+ production, and lacklustre demand from top importer China.
Q: Will the return of Donald Trump to the White House impact global markets?
A: Yes, the return of Donald Trump to the White House later this month is expected to add unpredictability for global markets.
Q: What does Goldman Sachs say about oil prices?
A: Goldman Sachs believes that oil prices are a few dollars undervalued right now, with global energy demand expected to rise very significantly.
