Oil gains 6% in 5 days over EU sanctions on Russia, Iran & US Fed rate cut bets; Brent sits at 3-week high
- Brent futures rose $1.08, or 1.5 per cent, to settle at $74.49 per barrel, logging a gain of five per cent last week. This was the contract's highest close since November 22.
International crude oil prices climbed about two per cent in the previous session to settle at a three-week high, driven by expectations that additional sanctions on Russia and Iran could tighten supplies and lower interest rates in Europe and the US Federal Reserve could boost global fuel demand.
Brent futures rose $1.08, or 1.5 per cent, to $74.49 a barrel. US West Texas Intermediate (WTI) crude rose $1.27, or 1.8 per cent, to $71.29. That was Brent's highest close since November 22, putting the contract up five per cent for the week. WTI posted a six per cent gain on the week and closed at its highest since November 7. Back home, crude oil futures settled 1.1 per cent higher at ₹6,044 per barrel on the multi-commodity exchange (MCX).
Brent, WTI up over 5%: What's driving crude oil prices?
-Analysts say the price strength is driven by expectations of tighter sanctions against Russia and Iran, more supportive Chinese economic guidance, Mideast political havoc and prospects for a US Federal Reserve rate cut next week.
-European Union (EU) ambassadors agreed to impose a 15th package of sanctions on Russia this week over its war against Ukraine, targeting its shadow tanker fleet. The US is considering similar moves.
-Britain, France and Germany told the United Nations Security Council they were ready, if necessary, to trigger a so-called "snap back" of all international sanctions on Iran to prevent the country from acquiring nuclear weapons.
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-Chinese data showed crude imports from the world's top importer grew annually in November for the first time in seven months. They are set to stay elevated into early 2025 as refiners lift more supply from top exporter Saudi Arabia, drawn by lower prices, while independent refiners rush to use their quota.
-The International Energy Agency (IEA) increased its forecast for 2025 global oil demand growth to 1.1 million barrels per day (bpd) from 990,000 bpd last month, citing China's stimulus measures. The IEA forecast an oil surplus for next year.
-As policymakers pledge to roll out more stimulus measures, new bank lending in China rose by far less than expected in November 2024, highlighting weak credit demand in the world's second-largest economy.
Key triggers for crude oil prices
Analysts say the strategy adopted by the Organization of the Petroleum Exporting Countries (OPEC) and allies like Russia (OPEC+) is one of the key variables driving uncertainty. Non-OPEC+ nations, driven by Argentina, Brazil, Canada, Guyana, and the US, are set to boost supply by about 1.5 million bpd.
-According to Bloomberg, the United Arab Emirates, an OPEC member, plans to reduce oil shipments early next year as OPEC+ seeks tighter discipline. The price of crude sold to China from Iran, another OPEC member, rose to the highest in years as US sanctions have tightened shipping capacity and boosted logistics costs.
-US President-elect Donald Trump's incoming administration is expected to ramp up pressure on Iran. Investors also bet the US Fed will cut US interest rates next week, with further reductions next year, after data showed unexpectedly rising weekly unemployment insurance claims.
-On the demand side, top China officials vowed to raise the fiscal deficit and boost consumption next year, offering another tailwind to crude usage. In the longer term, Rapidan Energy Group is forecasting a boom period for oil prices after 2035, driven by demand in China and across the globe.
-US import prices barely rose in November as rising food and fuel costs were largely offset by decreases elsewhere, thanks to a strong US dollar. Four European Central Bank (ECB) policymakers backed further interest rate cuts provided inflation settles at the bank's two per cent-goal as expected. Lower interest rates can boost economic growth and oil demand.
Where are prices headed?
The United Arab Emirates cut oil shipment allocations for some Asian customers, signalling quota compliance from a key OPEC member state, which supported crude oil prices. Still, prices have remained in a roughly $6 range since mid-October, and the outlook for market balances in 2025 has grown murkier.
"We expect crude oil prices to remain volatile. Crude oil has support at $69.20-68.80, and resistance is at $70.40-70.90. In INR crude oil has support at ₹5,910-5,850 while resistance at ₹6,050-6,120," said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.
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