Dec 15, 2023: Oil prices rallied on Friday, potentially marking their first weekly increase in two months following a positive outlook on future oil demand by the International Energy Agency (IEA) and a weakened dollar.
At 0918 GMT, Brent futures climbed by 21 cents, reaching $76.82 a barrel. Concurrently, U.S. West Texas Intermediate (WTI) crude also ascended by 21 cents to reach $71.79.
Both benchmarks seemed set for a modest weekly upturn, buoyed by the U.S. Federal Reserve’s mid-week suggestion of potential borrowing cost cuts in the coming year.
The dollar’s dip to a four-month low on Thursday, following the Federal Reserve’s indication of a likely halt in interest rate hikes and the prospect of reduced borrowing costs in 2024, contributed to the oil price boost. The dollar index showed minimal change on Friday.
The weakened dollar rendered dollar-denominated oil more affordable for foreign buyers.
The IEA’s monthly report predicted a 1.1 million barrels per day (bpd) rise in global oil consumption for 2024, up by 130,000 bpd from its previous forecast. This optimistic projection was attributed to improved prospects for U.S. demand and lower oil prices.
However, the IEA’s 2024 projection fell short of the Organization of the Petroleum Exporting Countries’ (OPEC) forecast of a 2.25 million bpd demand growth.
Commerzbank (ETR:CBKG) noted, “OPEC+ production cuts are expected to maintain oil market stability at the beginning of 2024, despite weaker demand, which should alleviate current concerns about oversupply.”
In late November, OPEC+ had agreed on voluntary cuts of approximately 2.2 million bpd throughout the first quarter, aiming to balance the market.
Nevertheless, oil prices faced pressure due to sluggish economic data from Germany, Europe’s largest economy, and China, the world’s leading oil importer.
The HCOB German Flash Composite Purchasing Managers’ Index (PMI) by S&P Global fell for the sixth consecutive month, declining to 46.7 in December, below economists’ forecast of 48.2.
China’s statistics bureau reported a drop in refinery runs to their lowest level since the beginning of 2023 in November. Margin pressure on non-state-owned refiners led to reduced production, while weak diesel consumption affected national fuel demand.
Amid ongoing challenges in China’s property market, data showcased a better-than-expected performance in industrial output and improving retail sales. This provided some relief to market sentiment amidst the country’s slow post-COVID economic recovery.