Oil prices are on track for a third successive weekly gain, marking the best performance since July. Global benchmark Brent crude climbed above $77 per barrel, up nearly 1% this week, while West Texas Intermediate (WTI) hovered near $74 per barrel.
Falling U.S. Stockpiles Signal Market Tightness
Crude inventories at the Cushing, Oklahoma, storage hub have declined to their lowest levels since 2014, indicating a tightening market. This reduction, combined with lower Russian shipments and increasing demand for heating fuels due to cold weather, has supported the recent price surge.
China’s Economic Challenges Add Mixed Signals
Consumer inflation in China continues to decline toward zero, highlighting ongoing economic struggles in the world’s top oil importer. This raises concerns about likely weakness in demand, although reduced Chinese imports of Iranian oil have contributed to tighter global supplies.
Bullish Market Metrics Reflect Tight Conditions
Brent’s prompt spread, a key indicator of market tightness, has widened to 70 cents per barrel in backwardation, a bullish structure. This is a significant increase from 29 cents a month ago, reflecting stronger near-term demand for crude.
Analysts See Limited Upside for Oil Prices
Chris Weston, head of research at Pepperstone Group, noted that the current price rally is justified by the inventory drawdowns, reduced Iranian exports, and increased heating fuel demand. However, he emphasized that supply levels near $75 per barrel suggest prices may remain capped, with hesitancy to push toward $80, as quoted on Bloomberg.
Geopolitical Risks Add to Market Volatility
The impending return of President-elect Donald Trump to the White House introduces further uncertainties. His anticipated policies, including new drilling on federal lands and potential tariffs on Canadian imports, are adding tension to the oil market.
Price Outlook for 2025
Morgan Stanley expects Brent Crude prices to average $70 per barrel in the second half of 2025, up from a $66-$68 a barrel range expected previously, after OPEC+ delayed the start of its output increase and slowed the pace of the output hikes into 2026.
The OPEC+ alliance recently decided lately to delay the beginning of the easing of the 2.2 million barrels per day (bpd) cuts to April 2025, from January 2025. The group also extended the period in which it would unwind all these cuts until September 2026.
Meanwhile, EIA expects the Brent crude price to be $74 per barrel in 2025 roughly the same as in 2024, as oil markets are projected to be relatively balanced on an annual average basis.
Oil ETFs in Focus
Against this backdrop, investors can keep a track of the oil-based exchange-traded funds (ETFs), altjough sustained rally in unlikely. United States Oil Fund LP USO is up 0.6% over the past week, Invesco DB Oil Fund DBO has gained about 2%, and United States 12 Month Oil Fund LP USL is up 0.5%.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
