Market Analysis

Oil Prices Climb to Two-Month Highs Amid Economic Growth Optimism

Amos Simanungkalit · 03 Jan31.3K Views

Image Credit: Reuters

Oil prices continued their upward trend on Friday after reaching their highest levels in over two months on Thursday, driven by expectations that governments worldwide may increase policy support to stimulate economic growth and boost fuel demand.

Brent crude futures rose 16 cents, or 0.2%, to $76.09 per barrel by 0132 GMT, following a close at its highest level since October 25. U.S. West Texas Intermediate (WTI) crude was up 19 cents, or 0.3%, at $73.32 per barrel, also its highest close since October 14. Both benchmarks are set to mark their second consecutive weekly gain, with improved trade liquidity as investors returned after the holiday period.

While factory activity in Asia, Europe, and the U.S. ended 2024 on a weak note, dampened by growing trade risks linked to a second Donald Trump presidency and China's fragile recovery, analysts remain optimistic about future growth.

Capital Economics analysts noted that manufacturing activity and GDP growth in Asia are expected to remain subdued in the near term, but with inflation below target in most countries, central banks in Asia are likely to continue loosening policies. Lower interest rates could stimulate more economic activity, leading to higher fuel consumption.

Investors are anticipating further interest rate cuts by the U.S. Federal Reserve in 2025 to support the economy, while China’s President Xi Jinping has pledged proactive policies to foster growth. StoneX analyst Alex Hodes highlighted that China's economic direction will be crucial in 2025, with hopes placed on government stimulus measures to boost consumption and drive oil demand growth.

In the U.S., gasoline and distillate inventories increased last week as refineries ramped up production, but fuel demand dropped to a two-year low. Crude stockpiles decreased by only 1.2 million barrels to 415.6 million barrels, less than analysts' expected 2.8-million-barrel decline.

Traders are also closely monitoring weather forecasts, as a cold snap in the U.S. and Europe in the coming weeks may increase demand for diesel as a substitute for natural gas for heating purposes.