Oil prices rose on Tuesday after data showed China’s manufacturing activity expanded in December, but are on track to end lower for a second consecutive year due to demand concerns in top consuming countries.
Brent futures rose 0.8% to $74.56 a barrel as of 0730 GMT, while US West Texas Intermediate crude gained 0.8% to $71.57 a barrel. For the year, Brent declined 3.2%, while WTI was down 0.1%.
China’s manufacturing activity expanded for a third straight month in December, but at a slower pace, an official factory survey showed. The country’s authorities have also agreed to issue a record 3 trillion yuan in special treasury bonds in 2025 to revive economic growth.
The Organization of Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA) have cut their oil demand expectations for 2025 due to a weaker demand outlook in China. OPEC and its allies delayed their plan to start raising output until April 2025 against a backdrop of falling prices.
The IEA expects global oil supply to exceed demand in 2025 even if OPEC+ cuts remain in place, as rising production from the United States and other outside producers outpaces sluggish demand.
Despite a weak longer-term demand outlook, oil prices may find short-term support from declining stockpiles, which are expected to have fallen by about 3 million barrels last week.
WTI and Brent were also lifted by a larger-than-expected drawdown from US crude inventories in the week ended December 20, as refiners ramped up activity and the holiday season boosted fuel demand.
Investor focus next year will be on the Federal Reserve’s rate path, as the central bank projects just two rate cuts, down from four in September. Lower interest rates generally incentivize borrowing and fuel growth, which is expected to boost oil demand.
The shifting expectations around US rates and the widening interest rate differentials between the United States and other economies have lifted the dollar and weighed on other currencies. A stronger dollar makes purchases of oil more expensive for consumers outside the United States, weighing on demand.
