Oil Ends Week Up Despite China Concerns, Fueled by Mideast Tensions

20 Jan 2024 , 09:42 AM

Oil prices experienced a slight decline on Friday, but they marked a weekly gain due to tensions in the Middle East and disruptions in oil output, which counteracted concerns about the Chinese and global economies.

Brent futures closed 54 cents lower at $78.56 per barrel, while U.S. West Texas Intermediate crude dropped by 67 cents to settle at $73.41. Brent gained approximately 0.5% for the week, while the U.S. benchmark saw an increase of over 1%.

In China, slower-than-expected economic growth in the fourth quarter cast doubt on predictions that Chinese demand would drive global oil growth in 2024. Bob Yawger, director of energy futures at Mizuho Bank, noted that the Chinese equity market hit a nearly five-year low, contributing to a decline in crude prices on Friday.

Geopolitical risks in the Middle East supported oil prices throughout the week. Escalating tensions in Gaza and U.S. strikes against Houthi anti-ship missiles in the Red Sea added to the geopolitical concerns.

While conflict in the Middle East did not result in the shutdown of oil production, supply outages persisted in Libya. In the U.S., about 30% of oil output in North Dakota, the third-largest oil-producing state, remained halted due to extreme cold, according to the state’s pipeline authority.

Craig Erlam, an analyst at brokerage OANDA, highlighted that supply disruptions pose an upside risk, but there are also downside risks, including concerns about the global economy. Additionally, the number of oil rigs operating in the U.S., an early indicator of production, fell by two to 497 for the week, as reported by Baker Hughes on Friday.

The International Energy Agency raised its 2024 global demand forecast during the week, but it remains half that of the producer group OPEC. The agency indicated that, barring significant disruptions to flows, the market seems reasonably well supplied in 2024.

Money managers reduced their net long positions in U.S. crude futures and options in the week ending January 16, according to the U.S. Commodity Futures Trading Commission (CFTC).