Oil prices rose in early Asian trade on Friday, poised for a third consecutive week of gains, driven by increasing fuel demand due to icy conditions in parts of the U.S. and Europe.
At 0752 GMT, Brent crude futures were up 69 cents, or 0.9%, at $77.61 per barrel. Similarly, U.S. West Texas Intermediate (WTI) crude futures gained 66 cents, also rising 0.9%, to $74.58 per barrel.
Over the past three weeks, ending on January 10, Brent has climbed more than 6%, while WTI has surged over 7%, highlighting a strong upward trend in the oil market.
Winter Weather and Supply Concerns Drive Prices Higher
Analysts at JPMorgan attributed the recent gains to a combination of factors, including tightening sanctions against Russia and Iran, concerns about supply disruptions, and low oil stockpiles. Additionally, the cold weather sweeping through the U.S. and Europe has significantly increased demand for heating fuel, further supporting the rally in prices.
The U.S. weather bureau has forecasted below-average temperatures across the central and eastern regions of the country, while many parts of Europe have been experiencing extreme cold. These conditions are expected to continue, further boosting demand for heating oil, kerosene, and liquefied petroleum gas (LPG), according to JPMorgan.
“We anticipate a significant year-over-year increase in global oil demand of 1.6 million barrels per day in the first quarter of 2025, primarily driven by winter heating demand,” JPMorgan analysts said in a note on Friday.
Signs of Supply Tightness and Strong Demand
Meanwhile, the premium of the front-month Brent contract over the six-month contract reached its widest level since August this week. This could signal supply tightness, especially as demand continues to rise amid cold weather.
Oil prices have managed to climb despite a strengthening U.S. dollar, which typically puts downward pressure on crude prices by making it more expensive to purchase oil in foreign currencies. The U.S. dollar has strengthened for six consecutive weeks, yet oil prices have continued their upward trajectory, highlighting the underlying strength in the market.
Impact of Sanctions and Geopolitical Uncertainty
Supply disruptions could intensify further as U.S. President Joe Biden is expected to announce new sanctions targeting Russia’s economy in the coming days. These measures are part of the U.S.’s ongoing support for Ukraine amid its conflict with Russia. Russia’s oil industry has been a key target of sanctions, and any additional restrictions could further tighten global supply.
“Uncertainty over how aggressive President-elect Donald Trump will be with Iran’s policies will also provide support to prices,” said analysts at ING. “Asian buyers have already been exploring alternative oil sources from the Middle East, as broader sanctions on Russia and Iran make their oil flows more difficult.”
As the geopolitical landscape continues to evolve, the combination of seasonal demand and tightening supply is likely to keep oil prices on a bullish path heading into 2025.
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