Despite a minor decline on Friday, oil prices saw a weekly increase as Middle East tensions and interruptions to oil production outweighed worries about the Chinese and worldwide economies. A barrel of Brent futures ended the day 54 cents lower at $78.56. West Texas Intermediate oil dropped 67 cents to close at $73.41 earlier on the day. While the US benchmark increased by more than 1% for the week, Brent gained almost 0.5%.
The fourth quarter’s slower-than-expected economic development in China threw doubt on predictions that the country’s demand will propel the rise of oil globally in 2024. This week, the Chinese stock market fell to levels not seen in almost five years.
Geopolitical concerns in the Middle East, meanwhile, helped to sustain prices during the week. After the US launched fresh strikes against Houthi anti-ship missiles that were pointed towards the Red Sea earlier in the week, tensions in Gaza increased on Friday as Israeli soldiers advanced southward against Hamas terrorists.
Oil production has not stopped due to the Middle East crisis, but supply disruptions have persisted in Libya. The US’s third-largest oil producing state, North Dakota, reported on Friday that severe cold had caused around 30% of its oil output to remain closed. Midweek saw a 700,000 bpd, or more than half, reduction in output. The state regulator stated on Friday that the restoration of output to normal levels would take up to one month.
There is still much uncertainty surrounding the rise of the world’s oil demand, as estimates from research organisations and stakeholders vary greatly. The difference between the six-month contract and the first-month Brent contract premium increased to $2.15 per barrel on Friday, the biggest level since November. This pattern, known as backwardation, suggests that there is a perceived shortage in order to ensure timely delivery.
While supply disruptions continue to be an upside risk, there are also downside risks, such as the state of the world economy. According to Baker Hughes on Friday, the number of oil rigs in operation in the United States, a leading indication of output, decreased by two to 497 this week.
This week, the International Energy Agency increased its forecast for world demand in 2024; yet, it is only half as high as OPEC. The Paris-based organization added that the market appeared to be rather adequately supplied in 2024, assuming there were no major disruptions to flows.
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