Oil Prices Dip Following Multi-Month Highs
After reaching multi-month highs on Wednesday, oil prices took a slight dip on Thursday. The decline came as a result of the US President Joe Biden’s latest sanctions targeting Russia and a larger-than-forecast fall in US crude stocks.
Sanctions and Supply Concerns
The Biden administration imposed hundreds of sanctions on Russia’s military industrial base and evasion schemes, following earlier sanctions on Russian oil producers and tankers. This move has led Moscow’s top customers to search for replacement barrels globally, causing shipping rates to surge. As a result, the market is entering a “wait-and-see” phase, awaiting the reaction from the incoming US administration on the issue of sanctions.
Potential Clash with OPEC
Pricier oil may lead to clashes between the incoming US administration and the Organization of the Petroleum Exporting Countries (OPEC). If the new president follows the previous playbook, they may demand that OPEC rein in prices whenever Brent climbs to around $80. However, OPEC and its allies are likely to be cautious about increasing supply despite the recent price rally, given their past experiences.
US Crude Oil Stocks Fall
Supporting prices, US crude oil stocks fell last week to their lowest since April 2022, as exports rose and imports fell, according to the Energy Information Administration (EIA). The 2 million-barrel draw was more than expected, adding to a tightened global supply outlook.
Demand and Interest Rate Cuts
On the demand front, global oil expanded by 1.2 million barrels per day in the first two weeks of 2025, slightly below expectations. However, analysts expect oil demand to grow by 1.4 million bpd year on year in coming weeks, driven by heightened travel activities in India and China. Some investors are also eyeing potential interest rate cuts by the US Federal Reserve in 2025, which could lend support to economic activities and energy consumption.
Market Outlook
As the market navigates the complex web of sanctions, supply concerns, and demand growth, oil prices are likely to remain volatile. With the incoming US administration’s stance on sanctions still unclear, investors are adopting a cautious approach, waiting for further developments before making their next move.
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