Favorable Economic Data and Market Trend
The U.S. economy outperformed expectations in the fourth quarter, with the release of data earlier on Thursday indicating robust activity in the world’s largest energy consumer. Gross domestic product (GDP) expanded at an annual rate of 3.3%, surpassing the predicted mark of 2.0%. Although this represented a slight drop from the 4.9% growth observed in the prior three months, it still demonstrated the U.S.’ economic resilience and bolstered market sentiment.
The positive momentum in the market was further reinforced by Wednesday’s official U.S. inventories data, revealing a significant 9.2 million barrel decrease in U.S. crude stockpiles. Severe winter weather conditions played a role in the decline as refineries were temporarily shut down and reduced motorists’ travel.
Moreover, U.S. crude output declined from its previous record of 13.3 million barrels per day two weeks ago to a five-month low of 12.3 million barrels per day last week. This reduction in supply indicated a potential tightening of the oil market.
China’s Stimulus Measures and Geopolitical Tensions
Another contributing factor to the rise in oil prices was the unexpected decision by China’s People’s Bank to cut reserve requirements for local banks. This move aimed to increase liquidity and stimulate economic growth in the largest oil-importing country.
Geopolitical tensions in the Middle East also played a role in supporting the crude market. The ongoing conflict between Israel and Hamas in Gaza, as well as the threat posed by Iran-backed Houthi militants to shipping in the Red Sea, added to concerns about potential supply disruptions.
Focus on Inflation Data and Future Factors
Attention now turns to Friday’s release of the U.S. PCE price index data, which serves as the Federal Reserve’s preferred inflation gauge. Market participants await the results, expecting to see whether inflation remains persistent in December. This data assumes significance ahead of the Federal Reserve’s upcoming meeting, where it is widely anticipated that interest rates will be maintained at their current 23-year highs.
Oil markets have been cautious about softening demand due to slowing economic growth and elevated interest rates, which have curbed gains resulting from supply reductions. The industry will closely monitor these factors moving forward.
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