Oil Prices Climb to Three-Week High on Sanctions, Interest Rate Cuts Expectations
Oil prices rose about 2% on Friday to settle at a three-week high, with Brent futures reaching its highest close since November 22 and West Texas Intermediate (WTI) closing at its highest since November 7. The surge in prices is attributed to expectations of additional sanctions on Russia and Iran, as well as lower interest rates in Europe and the US, which could boost fuel demand.
The European Union has agreed to impose a 15th package of sanctions on Russia over its war against Ukraine, while the US is considering similar moves. Additionally, the International Energy Agency (IEA) has increased its forecast for 2025 global oil demand growth to 1.1 million barrels per day from 990,000 barrels per day last month, citing China’s stimulus measures.
Chinese data showed that crude imports in November grew annually for the first time in seven months, with refiners expected to remain elevated into early 2025 as they increase their supply from top exporter Saudi Arabia, drawn by lower prices. New bank lending in China, however, rose by far less than expected in November, highlighting weak credit demand in the world’s second-largest economy.
The IEA also forecasts an oil surplus for next year, with non-OPEC+ nations increasing supply by about 1.5 million barrels per day, driven by Argentina, Brazil, Canada, Guyana, and the US. OPEC+ plans to reduce oil shipments early next year, with the United Arab Emirates, an OPEC member, planning to reduce oil shipments in the near future.
The price of crude sold to China from Iran, another OPEC member, has risen to its highest level in years due to tighter shipping capacity and boosted logistics costs resulting from US sanctions. The incoming administration of US President-elect Donald Trump is expected to ramp up pressure on Iran.
Analysts attribute the price surge to a combination of factors, including the expectation of tighter sanctions on Russia and Iran, more supportive Chinese economic guidance, Middle East political turmoil, and prospects for a Federal Reserve rate cut next week. As a result, oil prices are expected to continue rising in the coming weeks.
