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Oil prices rose slightly on Thursday, with Brent crude and West Texas Intermediate (WTI) gaining 0.5% and 0.4%, respectively, as traders balanced strong winter demand expectations against rising U.S. fuel inventories and macroeconomic uncertainties.
Key Market Drivers
Demand Expectations and Supply Concerns
- Brent crude futures increased by 35 cents to $76.51 per barrel, while WTI crude futures rose by 30 cents to $73.62 per barrel.
- Strong winter demand expectations are lending support to prices, despite the pressure from a stronger U.S. dollar and rising U.S. fuel stockpiles.
Brent Market Structure Indicates Supply Tightness
- The premium of the front-month Brent contract over the six-month contract widened to its largest since August, signaling increased trader concern about supply tightening amid rising demand.
- This market condition, known as backwardation, often points to supply constraints or robust near-term demand.
Rising U.S. Fuel Stockpiles
- Data from the Energy Information Administration (EIA) showed a significant increase in gasoline and distillates inventories last week, highlighting potential oversupply concerns in the U.S. market.
Geopolitical Developments
- U.S. President Joe Biden is set to announce new sanctions on Russia, targeting its economy and oil industry to strengthen Ukraine’s war effort.
- The sanctions come ahead of President-elect Donald Trump’s inauguration on January 20, adding geopolitical tension that could impact oil markets.
Stronger U.S. Dollar
- The dollar’s continued strengthening, driven by rising Treasury yields, is creating headwinds for oil prices. A stronger dollar makes crude more expensive for holders of other currencies, dampening demand.
Outlook
Oil markets are likely to remain volatile as traders weigh supply risks, demand dynamics, and geopolitical tensions. While strong winter fuel demand and backwardation in Brent futures suggest tightening conditions, rising U.S. inventories and a robust dollar could temper further price gains in the near term.
The impact of impending U.S. sanctions on Russia’s oil sector will also be closely monitored for potential disruptions to global supply.
