Oil Prices Surge on Expectations of Tighter Supplies and Lower Interest Rates
Oil prices climbed about 2 per cent on Friday to settle at a three-week high, driven by expectations of tighter sanctions on Russia and Iran, as well as lower interest rates in Europe and the US.
Brent and WTI Crude Prices Rise
Brent futures rose US$1.08, or 1.5 per cent, to settle at US$74.49 a barrel. US West Texas Intermediate (WTI) crude rose US$1.27, or 1.8 per cent, to settle at US$71.29. This marks Brent’s highest close since November 22 and a 5 per cent gain for the week. WTI posted a 6 per cent gain for the week and closed at its highest since November 7.
Market Analysis
"This strength is being driven by… expectations of tighter sanctions against Russia and Iran, more supportive Chinese economic guidance, political havoc in the Middle East and prospects for a Fed (US Federal Reserve) rate cut next week," analysts at energy advisory firm Ritterbusch and Associates said in a note.
Sanctions and Political Tensions
European Union ambassadors agreed to impose a 15th package of sanctions on Russia this week over its war against Ukraine, targeting its shadow tanker fleet. The US is considering similar moves. Britain, France, and Germany told the United Nations Security Council they were ready if necessary to trigger a so-called "snap back" of all international sanctions on Iran to prevent the country from acquiring nuclear weapons.
Global Oil Demand and Supply
The International Energy Agency (IEA) increased its forecast for 2025 global oil demand growth to 1.1 million barrels per day (bpd) from 990,000 bpd last month, citing China’s stimulus measures. The IEA forecast an oil surplus for next year, when non-Opec+ nations are set to boost supply by about 1.5 million bpd, driven by Argentina, Brazil, Canada, Guyana, and the US. Opec+ includes the Organization of the Petroleum Exporting Countries and allies such as Russia.
Conclusion
The surge in oil prices is driven by a combination of factors, including expectations of tighter sanctions on Russia and Iran, lower interest rates in Europe and the US, and increased global oil demand. As the global economy continues to recover, investors are betting on further rate cuts and increased oil demand, driving prices higher.
FAQs
Q: Why are oil prices rising?
A: Oil prices are rising due to expectations of tighter sanctions on Russia and Iran, lower interest rates in Europe and the US, and increased global oil demand.
Q: What is driving the increase in oil demand?
A: China’s stimulus measures and the IEA’s forecast of 2025 global oil demand growth are driving the increase in oil demand.
Q: What is the outlook for oil prices in 2025?
A: The IEA forecast an oil surplus for next year, when non-Opec+ nations are set to boost supply by about 1.5 million bpd.
Q: What is the impact of lower interest rates on oil prices?
A: Lower interest rates can boost economic growth and demand for oil, driving prices higher.
