Oil prices demonstrated minimal movement as the severe cold weather impacting U.S. oil production offset concerns about China’s economic growth and its potential impact on energy demand.
Brent crude futures settled down 41 cents at $77.88 per barrel, while U.S. West Texas Intermediate crude futures (WTI) gained 16 cents, reaching $72.56.
In North Dakota, a key U.S. oil-producing state, temperatures below zero Fahrenheit caused oil output to decline significantly, falling between 650,000 to 700,000 barrels per day. This disruption, accounting for more than half of the state’s typical output, contributed to supply concerns. As a result, U.S. crude futures trimmed earlier losses late in the session, bouncing back from a decline of over $1 per barrel, according to Andrew Lipow, President of Lipow Oil Associates.
Concerns about supply disruptions were complemented by the report of a 480,000-barrel increase in U.S. domestic crude stockpiles last week, as per sources citing American Petroleum Institute figures. Official U.S. government inventory data is scheduled for release on Thursday.
On the demand side, China’s economic growth for the fourth quarter came in at 5.2% year-on-year, missing analysts’ expectations. This raised questions about forecasts predicting Chinese demand as a driver of global oil growth in 2024. Despite the disappointment in the growth figures, China’s oil refinery throughput in 2023 rose by 9.3% to a record high, signaling robust demand.
Ongoing conflicts in the Red Sea, including naval and air tensions, failed to provide support to oil prices. Despite concerns about potential disruptions to tanker routes and increased shipping costs, prices remained unaffected. Tensions in the region escalated further as the U.S. conducted fresh strikes against Iran-aligned Houthi militants in Yemen.
The International Energy Agency (IEA) anticipates a “comfortable and balanced position” in oil markets for the current year, despite geopolitical tensions and a changing supply-demand outlook. OPEC also maintained an optimistic outlook, forecasting strong growth in global oil demand in 2024 and a “robust” increase in 2025, primarily led by China and the Middle East.
The U.S. dollar, hovering near a one-month high, contributed to the market dynamics. Comments from Federal Reserve officials dampened expectations of aggressive interest rate cuts, influencing the strength of the greenback and impacting demand for dollar-denominated oil among buyers using alternative currencies.