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• Oil prices traded flat on Friday as hopes of rising China demand were offset by a surge in US product stocks.
• US crude oil inventories fell last week, but gasoline and distillate stocks rose sharply.
• Forecasts of cold weather in the US and Europe could generate more heating demand for diesel.

Oil prices were flat on Friday after closing at their highest levels in more than two months in the previous session, as hopes of rising demand from China buoyed sentiments. 

“Oil prices recently surged to two-month highs, driven by hopes for global policy measures aimed at stimulating growth,” Arslan Ali, derivatives analyst at FXempire, said in a report. 

At the time of writing, the price of West Texas Intermediate crude oil on the New York Mercantile Exchange was $73.10 per barrel, largely flat from the previous close. Brent crude on the Intercontinental Exchange was also flat at $75.91 per barrel. 

Recent comments by China’s President Xi Jinping indicated that the Asian giant is likely to introduce proactive measures to boost the economy further. 

This raised hopes of increased demand for crude oil in the coming months, lifting prices on Thursday. 

Ali said:

 

However, subdued factory activity in key regions like Asia, Europe, and the U.S. highlights ongoing economic challenges. Analysts anticipate central banks will implement supportive policies to revive growth, boosting fuel consumption.

Lower interest rates increase liquidity in an economy and also bring down borrowing costs for the public, thereby lifting demand for commodities such as crude oil. 
 

China oil demand

Demand for crude oil in China remained subdued in 2024, which weighed on global prices. 

China is the biggest importer of crude oil in the world. Struggling economic activities in the country have weighed on sentiments and demand for fuel. 

Additionally, experts believe that crude oil demand is expected to peak in China in the coming years. Gasoline demand is expected to peak in the country as early as this year, according to experts. 

Against such a backdrop, a revival of crude oil demand from the country this year seemed unlikely. However, stimulus measures to boost the economy could provide some support to demand. 
 

US oil inventories decline

Inventories of crude oil in the US declined by 1.2 million barrels in the week ended December 27, according to the Energy Information Administration. 

Analysts had expected inventories to fall by 2.4 million barrels last week. 

However, gasoline inventories surged by 7.7 million barrels, while distillate stockpiles increased by 6.4 million barrels, the data from the report showed. 

The sharp build-up of product stocks in the US last week weighed on sentiments of traders. 

Oil production fell slightly by 12,000 barrels per day to 13.573 million barrels per day in the week ended December 27.

Imports and exports of crude oil by the US last week rose by 455,000 barrels per day and 132,000 barrels a day, respectively, the data showed. 
 

Will cold weather boost heating demand?

During the winter, homes and offices in the US and Europe use fuel for heating. Recent forecasts indicate cold weather in the country, which could prop up demand for oil and gas for heating. 

“Weather forecasts signaling a potential cold snap in the U.S. and Europe may increase demand for heating fuels, adding complexity to an already dynamic energy landscape,” FXstreet’s Ali said. 

Source: FXempire

Cold weather in the US and Europe is likely to raise demand for diesel, which is used as a substitute for natural gas for heating. 

Investors will also keep an eye on the release of the EIA’s weekly storage data for natural gas in the US later on Friday. 

Additionally, the markets are also bracing for President-elect Donald Trump’s presidency ahead of his inauguration day on January 20. 

“Trump’s tariffs on China and their impact on global demand patterns will be central to oil prices in 2025,” Priyanka Sachdeva, senior market analyst at Phillip Nova told Reuters.

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