Oil prices saw modest gains in early trading on Friday, supported by stronger-than-expected Chinese economic data, but geopolitical developments in the Middle East capped the increase.
As of 21:35 ET (02:35 GMT), Brent crude futures were up 0.4%, reaching $81.63 per barrel, while West Texas Intermediate (WTI) crude for March delivery rose 0.5%, hitting $78.24 per barrel.
Despite the increase, oil prices had settled lower in the previous session, as investors took profits following a four-month high earlier in the week. Market sentiment was also weighed down by expectations that Yemen’s Houthi militia might halt its attacks on shipping in the Red Sea following a ceasefire agreement between Israel and Hamas.
China’s Economic Growth Boosts Oil Demand Outlook
China’s economy showed stronger-than-expected growth in the fourth quarter of 2024, with the country’s annual GDP increasing by 5%, in line with Beijing’s target. This prompted optimism for a rebound in global oil demand, as China remains the world’s largest oil importer.
Additional economic data revealed a notable acceleration in industrial production for December, fueled by recent stimulus measures from the Chinese government. Retail sales also exceeded forecasts, further fueling optimism about the strength of the recovery.
These developments are seen as pivotal for the global oil market, with investors betting that China’s recovery will boost demand, even amid concerns over potential oversupply from non-OPEC countries, which are expected to ramp up production in the coming months.
Geopolitical Developments Lessen Price Pressure
While the positive Chinese data helped support prices, the market’s upward momentum was restrained by easing tensions in the Middle East. Maritime security officials are anticipating a cessation of attacks on shipping vessels in the Red Sea by Yemen’s Houthi militia.
Since November 2023, the Houthis have launched more than 100 attacks on ships in the region, disrupting global shipping routes and driving up insurance premiums. A ceasefire between Israel and Hamas has raised hopes that the Houthis will halt their offensive, potentially restoring stability to key maritime trade routes and alleviating concerns about oil supply disruptions.
US Sanctions on Russian Oil Offer Further Support
In a related development, U.S. sanctions targeting Russian oil exports are providing additional support to oil prices. The new measures, which focus on entities responsible for a significant portion of Russian and Iranian oil exports, are expected to disrupt Russia’s supply chains and tighten the global market.
The sanctions are part of ongoing efforts to limit Russia’s ability to transport and sell oil, with the International Energy Agency (IEA) highlighting the potential for these restrictions to exacerbate supply constraints. This is further reflected in the latest data from the U.S. Energy Information Administration (EIA), which showed a significant drawdown in U.S. crude oil inventories, signaling a tightening global oil supply.
As oil prices continue to fluctuate, the interplay between robust Chinese demand and geopolitical stability will likely remain key drivers for market sentiment in the weeks ahead.
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