1/26/2024

Oil prices fall, but traders are optimistic

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Key points:

  • Brent and WTI oil prices fell on Friday, but traders are bullish on the asset’s growth.
  • The main reason for optimism was the improvement in demand sentiment on the back of strong economic data in the US and signs of growth stimulation from China.
  • Officials are trying to diplomatically resolve oil supply disruptions in the Red Sea.

Despite a slight dip in prices, traders remain upbeat about oil’s recent surge, which marked the biggest weekly gain since October. This optimism stems from favorable economic indicators in the US and indications of growth stimulation measures from China, both of which could translate into increased fuel demand.

Brent crude futures edged down by 47 cents, or 0.6%, to $81.96 per barrel, while West Texas Intermediate (WTI) crude futures lost 61 cents, or 0.9%, to settle at $76.75 per barrel. Benchmark Brent finished the week with a 4.5% gain, while the benchmark US index was on track for a 4.8% rise. Both benchmarks were poised for their second consecutive weekly increase and their biggest weekly gains since the period ending October 13, coinciding with the conflict between Israel and Hamas in the Gaza Strip.

The premium for first-month Brent crude futures over the six-month contract climbed to $2.53 per barrel, marking its highest level since November.

The improved demand sentiment was fueled by data released on Thursday showing that the US economy, the world’s largest consumer of oil, expanded at a faster-than-expected pace in the fourth quarter. Additionally, China, the world’s second-largest oil consumer, announced a significant cut in bank reserves to stimulate economic growth.

Attempts to resolve the political conflict

Crude oil prices dipped slightly on Friday as China’s efforts to persuade Iran to rein in Houthi attacks on cargo ships in the Red Sea raised hopes for a potential easing of supply disruptions.

Chinese officials have reportedly urged their Iranian counterparts to halt the attacks, warning that continued disruptions could jeopardize business ties between the two countries. However, Houthi leaders have vowed to continue targeting Israeli-linked vessels until humanitarian aid reaches Palestinians in the Gaza Strip.

This stance, coupled with the ineffectiveness of previous US and UK interventions in the Red Sea, has left traders wary of further geopolitical tensions and the potential for disruptions to oil shipments.

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