Brent rises on optimism over Chinese economic growth

The front-month ICE Brent contract has risen $0.77/bbl higher on the day, to trade at $74.60/bbl at 09.00 GMT.

PHOTO: Getty Images

Upward pressure:

Brent futures rose slightly after China's manufacturing activity expanded for the third consecutive month in December, according to an official factory survey reported by Reuters.

Additionally, Chinese authorities plan to issue a record 3 trillion yuan ($411 billion) in special treasury bonds in 2025 to stimulate economic growth, potentially boosting the country's oil demand and supporting Brent prices.

Colder temperature forecasts for the US and Europe in the coming weeks are expected to increase diesel demand, which will further support Brent futures.

Oil prices are likely to rise, “driven mainly by forecasts of cold fronts in parts of the US and Europe in the coming days, fuelling expectations of a surge in natural gas and middle distillates consumption,” Vandana Hari, founder and analyst at VANDA Insights, noted.

Moreover, data from the US Energy Information Administration (EIA) showed a larger-than-expected drawdown in the US crude inventories for the week ending 20 December, with stocks falling by 4.2 million bbls. This decline was attributed to increased refinery activity and higher fuel demand during the holiday season, as reported by Reuters. The drop in US crude stockpiles has provided short-term support for oil prices.

Downward pressure:

The International Energy Agency (IEA) forecasts that global oil supply will exceed demand in 2025, even if OPEC+ production cuts remain in place, as increased output from the US and other non-OPEC producers outpaces sluggish demand, Reuters reported. This outlook has pressured oil prices.

Market participants are closely watching the Federal Reserve's monetary policy direction after the central bank projected only two rate cuts for 2025, down from four in September, due to persistent inflation, according to Reuters. Lower interest rates typically encourage borrowing and economic growth, which could boost oil demand.

However, shifting expectations around US interest rates and the widening gap between US and other nations' rates have strengthened the dollar, weighing on other currencies. A stronger dollar makes oil more expensive for buyers using other currencies, potentially reducing demand and exerting downward pressure on prices.

By Tuhin Roy

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