Oil prices showed a modest recovery to settle marginally higher, supported by a retreat in the dollar. However, concerns about demand persisted following disappointing Chinese economic growth data.
As of 19:30 ET (14:30 GMT), U.S. crude futures edged up by 0.2%, closing at $72.56 a barrel, while the Brent contract experienced a 0.3% decline, settling at $78.09 a barrel. Both contracts had faced intraday losses of over 2%.
Chinese GDP Disappointment:
Chinese gross domestic product (GDP) expanded by 5.2% year-on-year in the fourth quarter, slightly below expectations. The world’s largest oil importer continued to grapple with a sluggish post-COVID recovery, contributing to concerns about future oil demand. Despite surpassing the 5% government target for 2023, the growth was primarily attributed to a lower base for comparison from 2022 when the economy grew approximately 3%. This reading set a subdued tone for Chinese economic growth in 2024, signaling potentially weakened crude oil appetite in the coming months. Although Chinese oil imports hit record highs in 2023, the pace of growth was seen slowing towards the end of the year amid elevated inventory levels.
Dollar Strength Wanes:
The dollar’s strength, which had been capping oil prices, receded, offering relief even as data indicated stronger-than-expected U.S. retail sales. The uncertainty surrounding the timing of a potential rate cut by the Federal Reserve has contributed to fluctuations in the dollar, which rebounded to one-month highs in the early part of the year. A stronger dollar typically makes commodities, including oil, more expensive for foreign buyers, potentially curbing demand.
OPEC’s Growth Forecast:
In positive developments, the Organization of the Petroleum Exporting Countries (OPEC) maintained its forecast for robust global oil demand growth in 2024 in its monthly report. OPEC projected demand growth of 2.25 million barrels per day for 2024, unchanged from the previous month. Additionally, the report included a forecast for 2025, predicting a rise of 1.85 million barrels per day in global oil demand, with China and the Middle East leading the way. This 2025 prediction, a first in OPEC’s monthly report, was released earlier than usual to alleviate market uncertainty.
Market Uncertainty and U.S. Inventory Data:
Despite the positive outlook from OPEC, concerns lingered, with the possibility of the cartel needing to further cut production to sustain current oil prices amidst sluggish demand growth and elevated U.S. output. The American Petroleum Institute’s estimate of U.S. crude inventories, typically released on a Tuesday, was delayed due to a public holiday on Monday. The data could provide additional insights into the supply-demand dynamics influencing oil prices.