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• Oil prices have risen sharply this week despite OPEC scaling down its outlook for growth in global oil demand.
• Commerzbank said that the rise in China's oil imports in November does not signal a revival in demand.
• OPEC cut its forecasts for global oil demand growth in 2024 and 2025 for the fifth straight month in December.

Oil prices have been in the green this week after it ended on Friday at a three-week low. 

Geopolitical tensions and hope of recovery in demand from China have boosted sentiments in the market despite the Organization of the Petroleum Exporting Countries revising down its outlook for demand growth. 

Prices were also boosted after reports claimed that the US may impose more sanctions on Russian oil exports. 

At the time of writing, the West Texas Intermediate crude oil was at $70.47 per barrel, up 0.2%.

Brent crude on the Intercontinental Exchange was $73.78 per barrel, up 0.4% from the previous close. 

US Treasury Secretary Janet Yellen on Wednesday said that a weaker global oil market could present an opportunity for more sanctions against Russia.

The US and the western countries continue to work towards hindering Moscow’s ability to wage war against Ukraine. 

Limited supply of crude oil could prop up prices as oil has been rangebound for most of the year. 

Even with steep production cuts by OPEC and its allies, crude oil has struggled to sustain gains.

Prices have been largely trading in a narrow range $70-$75 per barrel over the past few months. 

However, China’s politburo on Monday said that it would adopt a loose monetary policy, which could revive demand from the world’s biggest importer of the fuel. 
 

Will demand from China revive?

Oil has risen this week on hopes of a recovery in Chinese oil demand.

The market expects fresh stimulus from the Chinese government to boost economic activities. 

China’s Central Economic Work Conference (CEWC) began on Wednesday. 

The country’s politburo signalled that it would loosen monetary policy and enact more targeted stimulus measures to boost economic growth. 

Also, China’s imports of crude oil rose on a year-on-year basis during November for the first time since April. 

David Morrison, senior market analyst at Trade Nation said:

 

While one data set doesn’t make a trend, it’s a promising start. 

In the meantime, WTI needs to break and hold above $70 as a first significant step to a rebound in prices.

The Asian giant also imported the highest volume of crude oil in a month since August 2023. 

“However, it is doubtful that this is a sign of stronger domestic demand. Rather, refineries are likely to have used the low price level in November to build up stocks,” Carsten Fritsch, commodity analyst at Commerzbank AG, said in a report. 

The German bank also believes that imports are likely to be lower again next year due to weak domestic demand.

This is also because of the rising fleet of electric vehicles in the country. 

Despite the increase in November, crude oil imports after eleven months are still 1.9% below the level in the same period last year, meaning that an annual decline is likely to be recorded for the third time in the last four years. 

“This is further confirmation that China is no longer the main driver of global oil demand,” Fritsch added. 
 

Middle East tensions

Oil prices also retained a higher risk premium after rebels in Syria overthrew President Bashar-al-Assad’s regime, raising concerns over oil supply from the region. 

Though Syria is not a major oil producer, its location in the Middle East, and close ties to Iran, makes things complicated. 

Additionally, Syrian rebel leader Ahmad al-Sharaa – better known as Abu Mohammed al-Golani will dissolve the security forces of the toppled regime of Bashar al-Assad, he told Reuters on Wednesday.

But, oil supply from the Middle East has not been affected even with the conflict between Israel and militant group Hamas. 

If tensions do not escalate further, the risk premium on oil prices could start to dissipate soon. 

(Click on image to enlarge)

Source: FXempire

With concerns over an oversupply next year and demand faltering, the absence of risk premium from the market could further weigh on prices.

Most experts believe that prices could be rangebound in the near-term as production from non-OPEC countries such as the US and Brazil set to rise even more.
 

OPEC revives demand growth forecast

The cartel on Wednesday cut its forecast for growth in global oil demand for the fifth straight month in December. 

OPEC scaled down its forecast for growth in global demand this year by 210,000 barrels per day from the previous month’s assessment.

It now sees demand for crude growing by 1.6 million barrels per day. 

For 2025, the cartel trimmed its forecast by 90,000 barrels per day, and sees consumption of oil rising by 1.4 million barrels per day next year. 

The cartel said it made downward adjustments to this year’s forecast as demand was lower during the third quarter in China, India and other countries in Asia. 

Investors will now wait for the monthly report of the International Energy Agency later on Thursday.

The Paris-based agency had previously forecast that oil demand is likely to grow by below 1 million barrels per day next year. 

Demand growth is also likely to average just short of the 1-million-barrel-per-day level this year as well, according to IEA. 

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