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Oil prices rose in early Asian trade on Friday, continuing their upward trajectory for a third consecutive week. Harsh winter conditions in parts of the United States and Europe have intensified demand for heating fuels, adding to supply concerns amid tightening sanctions and global economic shifts.
Brent crude futures increased by 40 cents, or 0.5%, to $77.32 per barrel as of 0602 GMT, while U.S. West Texas Intermediate (WTI) crude futures gained 38 cents, also rising 0.5%, to $74.30 per barrel. Over the past three weeks, Brent has surged by 6%, and WTI has climbed by 7%, driven by heightened supply risks and robust seasonal demand.
Analysts from JPMorgan highlighted several factors behind this consistent rally. These include potential supply disruptions tied to sanctions on major oil producers, historically low stockpiles, and freezing temperatures across key regions. Additionally, optimism surrounding China’s economic stimulus measures has bolstered market sentiment.
The U.S. National Weather Service predicts below-average temperatures across central and eastern parts of the country, while much of Europe faces an unusually cold start to the year. These conditions are expected to further increase demand for heating fuels such as kerosene, heating oil, and liquefied petroleum gas (LPG). JPMorgan forecasts a significant year-over-year rise in global oil demand of 1.6 million barrels per day during the first quarter of 2025, primarily driven by heating needs.
Adding to this bullish outlook, the market structure in Brent futures has shifted, with the front-month contract premium over the six-month contract reaching its widest margin since August. This “backwardation” typically signals tighter supplies as demand rises.
Remarkably, oil prices have advanced despite the U.S. dollar strengthening for six consecutive weeks. A stronger dollar usually dampens crude prices by making oil more expensive for buyers using other currencies.
Looking ahead, potential supply constraints could intensify as U.S. President Joe Biden is expected to unveil new sanctions targeting Russia’s economy, including its oil sector. The sanctions are part of efforts to support Ukraine before President-elect Donald Trump assumes office on January 20. ING analysts noted that uncertainty over Trump’s approach to Iran is also fueling market volatility.
“Asian buyers are already seeking alternative Middle Eastern crude grades, as broader sanctions against Russia and Iran complicate the flow of oil from these regions,” ING said in a report on Friday.
With winter demand surging and geopolitical uncertainties mounting, oil markets are likely to remain supported in the near term, despite the ongoing strength of the U.S. dollar.
