By Giulia Petroni
Here's a look at what happened in oil markets in the week of Jan. 6-10 and what the focus will be in the days to come.
OVERVIEW: Oil prices started the new year with strong momentum, boosted by colder weather and supply disruption concerns. Brent crude, the international oil benchmark, trades around $79 a barrel after breaking above $80 earlier in the session, while the U.S. oil gauge West Texas Intermediate is around $76 a barrel. Both benchmarks are headed for weekly gains of more than 3%, supported by expectations of stronger heating fuel demand and fresh U.S. sanctions against Russia.
MACRO: The latest U.S. data showed jobs growth beat expectations in December while the unemployment rate unexpectedly fell, reinforcing prospects that the Federal Reserve may slow down the pace of interest-rate cuts in the coming months. Higher rates and a stronger U.S. dollar typically make commodities like oil more expensive for holders of other currencies, but inflation concerns can also boost prices.
GEOPOLITICAL RISKS: The Biden administration tightened the squeeze on Russia's oil sector on Friday, targeting two of the Kremlin's major oil producers and its dark fleet of tankers. The move will likely intensify the slowdown in Russian crude exports, pushing prices higher.
Traders now await the impact of future U.S. policies on the market when President-elect Donald Trump takes office, particularly in regards to Iran. "Market focus has returned to Iranian production following additional sanctions announcements targeting Iran's shadow fleet, and ahead of the inauguration of the new U.S. administration, which reportedly aims to renew the 'maximum pressure' campaign against Iran," Goldman Sachs analysts said last week.
Expectations for an imminent end to Russia's war in Ukraine took a knock this week following a Financial Times report that Trump has pushed back his timeline for ending the conflict to several months.
SUPPLY AND DEMAND: The focus has turned to future U.S. policy and signs of supply tightening, as the market starts to see the effects of Western sanctions against Russia's shadow fleet. The Kremlin's seaborne crude exports have fallen last week, prompting Indian and Chinese buyers to seek alternatives.
"Asian buyers have already been looking for alternative grades from the Middle East, with broader sanctions against Russia and Iran making this oil flow more difficult," ING analysts said.
Meanwhile, the latest weekly data from the Energy Information Administration showed U.S. crude oil inventories fell for a seventh consecutive week, while product stocks saw large builds as refineries increased their capacity use.
WHAT'S AHEAD: Next week will be quite a busy one across the oil market, with demand likely to come back into focus. The three main energy forecasters--the EIA, the International Energy Agency and The Organization of the Petroleum Exporting Countries--are all scheduled to release their monthly reports.
Traders will likely keep a close eye on Russian oil production in December and any potential sign of tighter supplies due to sanctions. China's trade balance data for December will also be key.
"New forecasts and a large amount of economic data from China are likely to refocus attention on the demand prospects of the oil market," Commerzbank Research analysts said in a note to clients. "As these are not particularly rosy, the price recovery in the oil market is likely to come to a halt."
Write to Giulia Petroni at giulia.petroni@wsj.com
(END) Dow Jones Newswires
01-10-25 1228ET