Oil Prices Climb as Investors Anticipate Chinese Economic Recovery

Oil prices increased on Thursday, the first trading day of 2025, as investors returned from holiday breaks and looked to signs of recovery in China’s economy and fuel demand. The announcement by President Xi Jinping to focus on growth also added to the positive sentiment around oil.

Brent crude futures saw an uptick of 17 cents, or 0.06%, reaching $74.82 per barrel by 0547 GMT. This followed a 65-cent increase on the last trading day of 2024. Meanwhile, U.S. West Texas Intermediate (WTI) crude futures rose by 19 cents, or 0.26%, hitting $71.91 per barrel after a 73-cent gain in the previous session.

China's Economic Signals

In his New Year’s address, President Xi emphasized that China would adopt more proactive policies to spur economic growth in 2025. Recent data indicated that China’s factory activity expanded in December, according to a private-sector survey by Caixin/S&P Global. However, the growth was slower than expected, raising concerns over trade outlooks and potential tariffs proposed by U.S. President-elect Donald Trump.

Supporting this, an official survey released earlier highlighted that manufacturing activity in China had seen minimal growth for December, although sectors like services and construction showed improvement. The data implies that stimulus measures are slowly benefiting certain areas of the economy as China prepares for potential new trade challenges.

Market Reactions and Outlook

Investors returning from their holidays are likely assessing higher geopolitical risks as well as the potential impact of an active U.S. economy under Trump’s leadership, particularly concerning tariffs on imports. Tony Sycamore, an IG market analyst, pointed out that key data, such as the U.S. ISM manufacturing index due for release, could influence the next move in crude oil prices.

Sycamore further remarked that the weekly chart for WTI crude is becoming tighter, indicating that a significant price movement could be forthcoming. He advises waiting for a breakout before making any trading decisions.

Additionally, traders are interested in the weekly U.S. oil stock data from the Energy Information Administration (EIA), which was postponed to Thursday due to the New Year holiday. An extended Reuters poll predicts a decrease in U.S. crude oil and distillate stockpiles, while gasoline stocks are expected to rise.

Insights on U.S. Oil Demand

U.S. oil demand surged to levels not seen since the pandemic, reaching 21.01 million barrels per day in October, an increase of about 700,000 bpd from September, according to EIA data. Furthermore, crude production from the U.S., the world's leading oil producer, increased to a record 13.46 million bpd in the same month, up 260,000 bpd compared to September.

Future Expectations

Looking ahead to 2025, analysts suggest that oil prices may remain constrained around $70 per barrel, marking a decline for the third consecutive year after a 3% dip observed in 2024. This is attributed to weaker demand from China and rising global supplies offsetting OPEC+ efforts to stabilize the market.

In Europe, a notable development is the halt of gas exports from Russia through pipelines in Ukraine, effective on New Year’s Day. This expected suspension is not anticipated to influence European Union consumer prices as many buyers have secured alternative energy sources, while Hungary continues to receive Russian gas via the TurkStream pipeline under the Black Sea.

Oil, China, Economy