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As the new trading year begins, oil markets show renewed optimism fueled by China's economic outlook. On Thursday, Brent crude rose 1.6% to $75.81 a barrel, while West Texas Intermediate (WTI) gained 1.7% to $72.92. This surge comes after Chinese President Xi Jinping pledged to bolster growth through proactive policies in his New Year address.
China's manufacturing activity saw a slower-than-expected increase in December, as indicated by the Caixin/S&P Global survey. Despite the modest growth, sectors like construction and services reported stronger performance, hinting at the trickle-down effects of recent policy stimuli. Analysts suggest that weaker-than-expected data might prompt Beijing to accelerate its economic support measures, boosting demand for commodities like oil.
Investor sentiment also reflects heightened geopolitical risks. Tony Sycamore, an analyst at IG Markets, noted that traders are weighing uncertainties like potential U.S. tariff policies under the incoming administration. "Tomorrow's US ISM manufacturing data will be crucial for crude oil's next trajectory," Sycamore added, highlighting the tight range observed in WTI's weekly chart.
The Energy Information Administration (EIA) reported that October's oil demand reached 21.01 million barrels per day (bpd), the highest since the pandemic began. U.S. crude output also hit a record 13.46 million bpd, reflecting a growing supply response to global demand. However, rising inventories, particularly in gasoline, could temper price gains.
Elsewhere, Russia halted gas pipeline exports via Ukraine on January 1, following the expiration of a transit agreement. While the European Union had prepared alternative supplies, Hungary continues to receive Russian gas through the TurkStream pipeline. This move underscores ongoing tensions in energy geopolitics, with potential implications for global oil prices.
Looking ahead, oil markets face conflicting forces. A Reuters poll predicts prices may remain near $70 per barrel throughout 2025, marking a third consecutive year of decline. Weak Chinese demand and rising global supplies could offset OPEC+ efforts to stabilize the market. Nonetheless, the outlook for liquefied natural gas (LNG) remains bullish, with European and Asian demand expected to tighten supplies in the near term.
