Oil Prices Rise on Back of Cold Weather and Economic Stimulus
Market Analysis
Oil prices rose on Friday, closing the week higher on the back of cold weather in Europe and the US, as well as additional economic stimulus flagged by China.
Brent and WTI Crude Prices
Brent crude futures settled 58 cents, or 0.8 per cent, higher at $76.51 a barrel, the highest level since October 14. US West Texas Intermediate crude settled 83 cents, or 1.13 per cent, to $73.96, the highest level since October 11. Brent notched a 2.4 per cent weekly gain, while WTI climbed nearly 5 per cent.
Chinese Economic Stimulus
Signs of Chinese economic fragility heightened expectations of policy measures to boost growth in the world’s top oil importer. "China just is unceasing at this point in terms of their announcements about trying to stoke economic activity, and the market’s taking note of that," said John Kilduff, partner at Again Capital in New York. Worries about Chinese demand were a factor in bearish demand assumptions last year.
Additional Measures to Boost Growth
China announced a couple of new measures to boost growth this week with a surprise move to raise wages for government workers and the announcement of a sharp increase in funding from ultra-long treasury bonds. The additional funding is to be used to spur business investment and consumer-boosting initiatives.
Weather Factors
Oil is likely to have gained some price support from expected increased demand for heating oil after forecasts for colder weather in some regions. "Oil demand is likely benefiting from cold temperatures across Europe and the US," said UBS analyst Giovanni Staunovo.
US Oil Rig Count and Crude Stockpiles
The US oil rig count, an indicator of future output, fell one to 482 this week, according to energy services firm Baker Hughes. US crude stockpiles dropped by 1.2 million barrels to 415.6 million barrels last week, EIA data showed. Meanwhile, U.S. gasoline and distillate inventories jumped as refineries ramped up output, though fuel demand hit a two-year low.
Currency Factors
However, the dollar was on track for its best week in about two months, even as it dipped on Friday, on expectations that the US economy will continue to outperform its peers globally this year and that US interest rates will stay relatively higher. Higher borrowing costs can cut economic growth and demand for oil.
Conclusion
Oil prices rose on Friday, driven by cold weather in Europe and the US, as well as additional economic stimulus flagged by China. While the dollar’s strength may hold back prices, the overall trend is expected to continue, driven by increased demand for heating oil and a decline in US oil rig count.
FAQs
Q: What drove oil prices higher on Friday?
A: Cold weather in Europe and the US, as well as additional economic stimulus flagged by China.
Q: What were the key price movements in Brent and WTI crude?
A: Brent crude futures settled 58 cents, or 0.8 per cent, higher at $76.51 a barrel, while US West Texas Intermediate crude settled 83 cents, or 1.13 per cent, to $73.96.
Q: What is the impact of Chinese economic stimulus on oil prices?
A: Signs of Chinese economic fragility heightened expectations of policy measures to boost growth, leading to increased demand for oil.
Q: What are the key factors driving oil demand?
A: Cold weather, increased demand for heating oil, and a decline in US oil rig count are driving oil demand.
