Brent crude futures rose above $81 on Wednesday amid due to persisting conflicts in the Middle East, slump in US crude output, and China's fresh economic stimulus.

Oil prices edged higher on Wednesday, driven by a mix of factors, primarily a dip in US crude output, China’s economic stimulus, and geopolitical turmoil. However, analysts believe the upside remains limited for now unless the conflict in the Middle East significantly escalates. 

Why is Oil Up Today?

Last week, the Energy Information Administration (EIA) reported a significant decrease in US crude stockpiles, with a drop of 9.2 million barrels. This surpasses the 2.2 million-barrel reduction that analysts polled by Reuters had predicted.

US crude output witnessed a slump, declining from a record 13.3 million barrels per day (bpd) two weeks ago to 12.3 bpd, a five-month low. The drop is attributed to oil wells freezing during an Arctic freeze.

Officials in North Dakota have indicated that it may take up to a month for oil output in the state, which includes the Bakken shale field and ranks as the third-largest oil-producing state, to recover. Last week’s extreme weather conditions led to a production cut of more than half in the region.

“It’s a weather report all-around … Nobody was driving (last week). One big number is domestic production was down, and Bakken production took a big hit.”

– said Bob Yawger, director of energy futures at the Mizuho bank.

Meanwhile, China’s central bank declared a substantial reduction in bank reserves, injecting approximately $140 billion into the banking system. To accelerate economic recovery, the People’s Bank of China (PBOC) will cut the amount of cash banks must hold as reserves starting February 5. 

Increased economic activity in China is expected to drive up oil demand, increasing oil prices.

The ongoing geopolitical tensions are another key catalyst adding upward pressure on crude oil prices. The alliance led by the US and Britain launched fresh strikes against Houthi fighters in Yemen. The attacks came in response to Houthis’ assaults on commercial shipping in the Red Sea, which they claim are in response to Israel’s attacks in Gaza. 

Brent Above $80, But Analysts Think Prices Will Remain Range-Bound

Due to the aforementioned price catalysts, Brent crude futures climbed around 1.3% to $81.14 on Wednesday, while the West Texas Intermediate (WTI) rose to $76.26. 

The two contracts added about 3.9% and 4.8% since the start of 2024. However, oil and gas strategist Vikas Dwivedi believes prices should remain range-bound in the first quarter of the year unless there is a major escalation in the Middle East conflict. 

Similarly, PVM Oil Associates analyst Tamas Varga thinks Brent should stay in the $72 to $72 range if the supply isn’t materially affected in the Middle East. 

Where do you think oil prices will stand at the end of the first quarter? Let us know in the comments below. 

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