Crude oil poised for weekly gains despite rising supply challenges

Oil prices were steady on Friday, and were on course for their first weekly gain since late November as supply fears boosted sentiments. 

The bullish momentum was “supported by supply disruption fears stemming from geopolitical tensions and tightening sanctions,” Arslan Ali, derivatives analyst at FXempire, said in a note. 

Over the last one week, oil prices have climbed more than 4%. Additionally, hopes of a recovery in demand from China have also aided bullish sentiments. 

At the time of writing, the price of West Texas Intermediate crude was $70.17, up 0.2%, while Brent crude was 0.1% higher at $73.50 per barrel. 

Sanctions risk

Oil prices have climbed after reports claimed earlier this week that the US President Joe Biden is looking at potentially imposing further sanctions on Russia, including targeting oil and its shadow tanker fleet. 

It said that a weaker oil market presents opportunities for imposing more sanctions on Moscow, and halting its efforts in war against Ukraine. 

Analysts at ING Group, said in a note:

Russia remains under heavy sanctions from the western powers such as the US, UK and Europe. 

However, its exports of oil have since been diverted to countries in Asia, with India gobbling up most of the barrels. 

On Thursday, Reuters reported that Russia’s Rosneft and Indian private refiner Reliance had struck the biggest energy deal between the two countries to supply nearly 500,000 barrels per day of oil for the next 10 years. 

Optimism over China demand

Data from China showed that crude imports had surged in November, raising hopes of a recovery in demand from the world’s biggest importer. 

Imports rose for the first time since April last month, while volumes were highest since August 2023. 

Meanwhile, China’s Politburo on Monday said that the country would adopt a loose monetary policy, which further raised expectations of targeted stimulus measures that could boost economic activities. 

China’s Central Economic Work Conference concluded on Thursday. 

China pledged on Thursday to increase the budget deficit, issue more debt and loosen monetary policy to maintain a stable economic growth rate as it gears up for more trade tensions with the United States as Donald Trump returns to the White House. 

However, experts at Vortexa expect crude oil demand to be subdued next year as well.

Demand growth could pick up from the second half of 2025, however, it will not be around 2023 levels, Vortexa’s Emma Li had told Invezz in an interview. 

Rising supply

On Thursday, the International Energy Agency said demand for oil is likely to rise by 1.1 million barrels per day in 2025 from 840,000 barrels a day of growth this year. 

However, the agency expects an oversupply of around 1 million barrels per day even after the Organization of the Petroleum Exporting Countries extended their output cuts. 

The bearish outlook is expected to weigh on sentiments going forward, and experts do not see oil prices rising much higher than current levels because of that unless there are escalations in geopolitical tensions. 

The IEA said that it expects crude oil supply from countries such as the US, Guyana, Brazil, Canada and Argentina to rise by 1.5 million barrels per day next year. 

Overall supply of crude is expected to rise by 1.9 million barrels per day next year, significantly higher than the estimate for demand growth. 

Meanwhile, the market expects the US Federal Reserve to cut interest rates by 25 basis points at its next week policy meeting.