Crude Oil – Investors shift focus to positive US demand signals

08 Jan 2025

By Priyanka Sachdeva, Senior Market Analyst for Phillip Nova

Crude Oil Market Snapshot

The American Petroleum Institute (API) numbers showed a draw of 4 million barrels for the week ending 3 Jan, higher than estimates
Speculations over further US sanctions on Russian and Iranian supplies, weighed on prices
US markets are closed on 9th January to observe a national day of mourning for the former president of the United States, Jimmy Carter.

After a slight correction on Monday, oil prices continued to rise following the American Petroleum Institute’s data released on Tuesday, which showed a larger-than-expected drawdown in US stockpiles. This indicates a strong oil demand. The oil markets are optimistic about the potential for a harsh winter, which is expected to increase oil demand. Any signals that support this belief will be crucial drivers of oil prices.

Both benchmarks, WTI and Brent, gained over 1% on Tuesday, driven by positive demand signals, concerns about Donald Trump’s potential comeback, and optimism regarding the rebound of the Chinese economy. Trump has suggested imposing harsh tariffs on Russian and Iranian oil, which could restrict supplies, while his policies may lead to increased oil production in the US, potentially adding to overall supplies. The uncertainty about how these factors will ultimately affect global oil supplies is keeping investors cautious.

Technically, with enough traction at current levels and renewed optimism for oil, oil bulls may attempt to touch the key resistance of the 200-day moving average of $75.38 per barrel and $79.19 per barrel for WTI and Brent futures respectively. From the chart, we can also see that the WTI is consolidating in a triangle formation. As of 9:20 am Singapore Standard Time, WTI futures is trading at $74.66 per barrel up by +0.57% while Brent futures is trading at $77.34 per barrel slightly up by +0.18%. The EIA’s official data is expected later in the day. Meanwhile, the US markets are closed on 9 January 2025 to observe a national day of mourning for Jimmy Carter.

The demand patterns from the US and China are significant factors to consider. Powell has already indicated that the pace of interest rate cuts will slow in 2025, highlighting the challenges posed by deflation. With higher interest rates, economic activity is questionable, which may affect the demand for fuel in the world’s largest economy. Additionally, there is a lack of clarity regarding demand from China. While the authorities have promised to boost the economy, there are no clear results visible at this time. The combination of sluggish economic activity and uncertain oil demand from these two major economies is keeping a lid on oil prices.

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