- The European Union agreed to impose more sanctions on Russian oil.
- OPEC downgraded its demand growth forecast for 2024 and 2025.
- US consumer prices increased by 0.3% in November.
Oil prices rallied on Wednesday as supply concerns overshadowed demand concerns. Meanwhile, the recent efforts to boost China’s economy have supported prices. At the same time, US inflation figures came in line with estimates, solidifying bets for a December Fed rate cut.
Market participants worried about supply on Wednesday after the European Union agreed to impose more sanctions on Russian oil. The decision came in response to the continuing war in Ukraine. Moreover, despite previous sanctions, Russia has found ways to keep its oil in the market. This will be the 15th package of sanctions on the country’s oil supply and could tighten the market. This, in turn, will likely boost prices.
Meanwhile, tensions in the Middle East have kept a premium on oil prices. This week, Israel intensified its strikes on Gaza, leading to the death of many. If there is no ceasefire soon, the conflict could escalate, boosting oil. However, although slow, mediating countries are working to broker a ceasefire deal.
Supply worries have also lingered since the OPEC+ group agreed to delay an output increase planned for January next year. These constant delays have come amid worries of weak demand that has kept downward pressure on oil prices.
Notably, OPEC downgraded its demand growth forecast for 2024 and 2025 on Wednesday. This move came despite China’s efforts to boost its economy through additional stimulus. Therefore, it signals a lack of confidence in a brighter outlook for oil consumption.
Nevertheless, China’s efforts this week have supported oil. Top officials agreed to shift to looser monetary policy settings to spur growth and increase economic demand. At the same time, data revealed that Chinese crude imports rose for the first time in November, a good sign for demand.
Elsewhere, US crude inventories fell slightly more than expected last week, showing steady demand. Stocks dropped by 1.425 million barrels, above estimates of a 1 million barrel draw.
US inflation (Source: Bureau of Labor Statistics)
Meanwhile, markets also focused on the US inflation report that came out on Wednesday. According to the report, consumer prices increased by 0.3% in November and 2.7% annually, coming in line with expectations. As a result, markets gained more confidence that the Fed will implement a 25-bps rate cut in December.
