Oil Heads for Weekly Gains on Colder Weather and Chinese Policy Support

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Cold Weather in Europe and US Supports Oil Demand

Oil prices edged higher on Friday, with Brent crude futures up 69 cents or 0.9% at $76.62 a barrel by 12:49 p.m. ET (1749 GMT). This marked the highest level since October 25. U.S. West Texas Intermediate crude gained $1.11 or 1.5% to $74.24.

Weekly Gains for Oil Prices

Brent was on track for a 3.3% weekly gain, while WTI was set for a 5% increase. This surge in prices can be attributed to the cold weather in Europe and the US, which has boosted demand for heating oil. Analysts predict that oil demand will continue to benefit from these colder temperatures.

China’s Economic Stimulus Measures

Signs of Chinese economic fragility have heightened expectations of policy measures to boost growth in the world’s top oil importer. China announced new measures this week to stimulate growth, including a surprise move to raise wages for government workers and an increase in funding from ultra-long treasury bonds.

China’s Efforts to Boost Economic Growth

Wage Increase: China’s decision to raise wages for government workers is expected to boost economic activity. This move is likely to have a positive impact on consumer spending, which can lead to increased demand for oil.
Ultra-Long Treasury Bonds: The announcement of an increase in funding from ultra-long treasury bonds is aimed at spurring business investment and consumer-boosting initiatives.

UBS Analyst’s Perspective

Oil is likely to have gained some price support from expected increased demand for heating oil after forecasts for colder weather in some regions. Giovanni Staunovo, UBS analyst, stated that "oil demand is likely benefiting from cold temperatures across Europe and the US."

EIA Data on Crude Stockpiles

U.S. crude stockpiles dropped by 1.2 million barrels to 415.6 million barrels last week, according to EIA data. This decline in inventory levels has contributed to the rise in oil prices.

Refineries Ramping Up Output

Meanwhile, U.S. gasoline and distillate inventories jumped as refineries ramped up output. However, fuel demand hit a two-year low, which may hold back prices.

Dollar’s Impact on Oil Prices

The dollar was on track for its best week in about two months, even as it dipped on Friday. This is due to expectations that the US economy will continue to outperform its peers globally this year and that US interest rates will stay relatively higher. Higher rates increase borrowing costs, which can cut economic growth and demand for oil.

Analyst’s Insights

John Kilduff, partner at Again Capital in New York, stated that "China just is unceasing at this point in terms of their announcements about trying to stoke economic activity, and the market’s taking note of that."
He added that worries about Chinese demand were a factor in bearish demand assumptions last year.

Conclusion

Oil prices edged higher on Friday due to cold weather in Europe and the US, as well as China’s economic stimulus measures. Brent was up 69 cents or 0.9% at $76.62 a barrel by 12:49 p.m. ET (1749 GMT), while WTI gained $1.11 or 1.5% to $74.24. This marked the highest level since October 25, and prices were on track for weekly gains of 3.3% and 5%, respectively.

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