Oil prices surged in the first trading session of 2025, marking the highest levels since October, as U.S. crude stockpiles registered another decline and technical indicators pointed to stronger short-term demand. West Texas Intermediate (WTI) rose 2%, closing above $73 per barrel, while Brent crude climbed to $76, reflecting optimism fueled by tightening supplies and economic signals from China. Government data revealed U.S. crude inventories dropped by 1.18 million barrels last week, the sixth consecutive drawdown.
Despite the bullish trend, analysts suggested caution, attributing some of the fluctuations to end-of-year inventory adjustments for tax purposes. Jon Byrne, an analyst at Strategas Securities, noted the report was too complex to derive definitive conclusions but acknowledged prices had reached the upper limit of recent trading ranges. Technical factors also supported the price gains, with both benchmarks closing above their 100-day moving averages for the first time since October.
WTI’s prompt spread, measuring the difference between its nearest contracts, strengthened to 63 cents in backwardation – indicating stronger immediate demand relative to supply. The price movement follows a year of relatively narrow trading ranges for oil, with WTI posting its smallest annual change in nearly two decades. Market sentiment has been tempered by concerns about oversupply and challenges faced by OPEC+ in curbing output to stabilize prices.
Analysts are monitoring geopolitical uncertainties, including potential policy shifts under former President Donald Trump, whose return to office could impact energy markets. In China, recent data on manufacturing activity suggested slower-than-expected growth in December, raising questions about the nation’s economic recovery. However, remarks by President Xi Jinping about adopting more proactive growth policies in 2025 offered some reassurance to traders.
Weaker Chinese economic indicators have also spurred expectations of additional government stimulus, which could bolster demand for crude oil. Meanwhile, inventory data from the U.S. Energy Information Administration showed gasoline and distillate supplies rose significantly last week. Gasoline stocks increased by 7.7 million barrels, and distillate inventories climbed by 6.4 million barrels. Despite these builds, the drop in crude stockpiles sustained upward price momentum, suggesting supply tightness remains a concern.
Market participants are also keeping an eye on geopolitical developments in Europe, where Russia halted gas exports via Ukraine after the expiration of a transit agreement. While the European Union has secured alternative supplies, Hungary continues to receive Russian gas through the TurkStream pipeline, mitigating immediate disruptions.
Looking ahead, oil prices are expected to face resistance near $70 per barrel amid forecasts for a third consecutive annual decline. Rising global supplies and ongoing shifts to renewable energy are expected to offset OPEC+ production cuts. Traders are now awaiting further economic data, including the U.S. ISM manufacturing report, for indications of broader trends influencing demand. – By MENA Newswire News Desk.