Oil prices edged higher on Tuesday, reversing losses from the previous session, as market participants showed cautious optimism regarding short-term price stability. The thin trading activity, typical ahead of the Christmas holiday, did little to dampen the slightly positive outlook.
As of 0742 GMT, Brent crude futures rose by 42 cents, or 0.6%, to $73.05 per barrel. Similarly, U.S. West Texas Intermediate (WTI) crude futures gained 38 cents, or 0.6%, reaching $69.62 per barrel.
Analysts from FGE attributed the modest gains to stabilising supply and demand dynamics, which have supported a less bearish sentiment in recent weeks. “We anticipate that benchmark prices will fluctuate around current levels in the short term as activity in the paper markets decreases during the holiday season,” FGE noted in a report. They also warned that any unexpected supply disruptions could lead to sudden price spikes, given the short positioning in the paper markets.
Additional factors contributed to the improved market sentiment. Neil Crosby, assistant vice-president of oil analytics at Sparta Commodities, highlighted shifting expectations for oil balances in 2025 as a factor influencing the current outlook. “The year is ending with the consensus from major agencies over long 2025 liquids balances starting to break down,” Crosby stated. He pointed to the U.S. Energy Information Administration’s (EIA) latest short-term energy outlook, which revised 2025 liquids projections to a draw despite anticipated increases in OPEC+ production.
The announcement of fiscal stimulus plans in China, the world’s largest oil importer, also buoyed prices. Beijing’s decision to issue 3 trillion yuan (approximately $411 billion) in special treasury bonds next year aims to stimulate its slowing economy. Analysts, including Kelvin Wong of OANDA, believe this move could provide near-term support for WTI crude, keeping prices around the $67 per barrel mark.
In the United States, mixed economic data added complexity to the market narrative. On the positive side, new orders for U.S.-manufactured capital goods surged in November, driven by strong demand for machinery. Additionally, a rebound in new home sales underscored resilience in the U.S. economy as 2023 draws to a close. However, broader economic signals remain mixed, leaving markets wary of the broader global economic trajectory.
The oil market continues to face significant uncertainties heading into 2024, including the impacts of fiscal measures in major economies and potential shifts in OPEC+ production strategies. For now, the modest gains in pre-holiday trade reflect a tentative optimism, tempered by the complexities of global economic and supply-demand dynamics.