International crude oil prices climbed higher this week to a three-week high on a combination of expectations of tighter sanctions on Russia and Iran and the possibility of any rate cuts from the US Federal Reserve. Brent crude futures climbed by $1.08, or 1.5%, to settle up at $74.49 per barrel, the highest since November 22. US West Texas Intermediate C (WTI) crude rose $1.27, or 1.8 percent, to settle at $71.29, reaching its highest close since November 7.
Brent crude rallied by 5 percent for the week, while WTI gained 6 percent as markets look to the prospect of disruptions to global oil supplies helping to boost prices. Although the European Union signed off on its 15th package of sanctions against Russia to target the shadow tanker fleet used for oil transport and the US discussed imposing similar measures, market concerns are growing tighter. Britain, France, and Germany also told the UN Security Council they were’ready to re-impose international sanctions on Iran’, increasing geopolitical tension.
Supply and Demand Dynamics
Crude imports by China, the world’s top importer, rose year on year in November, the first increase in seven months. Chinese refiners should continue buying lower-priced supplies from Saudi Arabia and other exporters into early 2025, continuing this trend. Sustained demand is also being driven by the fact that independent refiners in China are expediting their use of import quotas.
The International Energy Agency (IEA) boosted its forecast for global oil demand growth in 2025 to 1.1 million bpd from 990,000 bpd previously. This outlook from the IEA assumes that China will continue to stimulate its economy with stimulus measures, albeit at a lower level than expected new bank lending figures for November.
But the IEA expects an oil surplus next year, with non-OPEC+ producers such as Argentina, Brazil, Canada, Guyana, and the US slated to pump a total of about 1.5 million bpd more. But OPEC+ members are looking at bolstering production discipline, with the UAE hoping to cut shipments in the early part of 2025.
Market Drivers and Volatility
Oil prices have benefited from the possibility of a US Federal Reserve rate cut. They continue to bet on rate cuts after unemployment claims rose and inflationary pressure stayed muted. Usually, lower interest rates mean more economic activity and more demand for energy.
However, there have been political developments in the Middle East that have helped bolster the bullish sentiment. Crude prices have risen, especially for Iran shipments heading towards China, as tensions rise and supply constraints worsen.
The upward trend has been accompanied by some analysts’ predictions of volatility in the oil market. Gains may be capped by strength in the dollar index and fears of oversupply in 2024. WTI was expected to trade between $69.20 and $70.90 a barrel for the day, crude prices.
Looking Ahead
The oil market will be sensitive to supply and demand shifts, as prices are expected to be shaped by sanctions, geopolitical factors, and central bank policies. Traders and policymakers alike will also be watching Russia, Iran, and China and upcoming decisions from the US Federal Reserve and OPEC+.
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