Oil prices steadied on Thursday as traders weighed concerns over China’s economic slowdown alongside a drawdown in U.S. crude stockpiles. Brent crude remained largely unchanged near $76 a barrel, after a more than 1% drop on Wednesday, despite a significant decline in oil inventories at the key Cushing, Oklahoma hub, which reached its lowest level since 2014. West Texas Intermediate (WTI) was holding above $73.
Weak Economic Data from China
In a report released Thursday, China’s consumer inflation continued its downward trend, edging closer to zero, signaling ongoing challenges in the country’s efforts to boost demand through stimulus measures. Meanwhile, factory deflation persisted for the 27th consecutive month, underscoring the strain on the world’s largest crude importer.
Despite these headwinds, oil prices began 2025 on a positive note, defying widespread concerns of a global supply glut that had been expected to dampen prices this year. The rally, which saw Brent briefly touch its highest level since mid-October, has been fueled by a combination of factors, including declining U.S. stockpiles, reduced supplies from Russia, and uncertainty over potential disruptions under President-elect Donald Trump’s incoming administration.
Geopolitical Concerns and Volatility
Oil market participants are bracing for volatility, with UBS Group AG’s Wayne Gordon predicting that market fluctuations could persist into Trump’s inauguration on January 20. “The only thing we do sort of know is that he is unpredictable,” Gordon remarked, referring to the uncertainty surrounding Trump’s policies.
Trump’s foreign policy agenda could significantly impact the global oil market. He has threatened to impose tariffs on all Canadian imports, including crude shipments, which could disrupt North American energy flows. In addition, his administration is expected to adopt a tougher stance on Iranian oil sanctions, potentially affecting global oil trade dynamics.
Canada’s Energy Minister Jonathan Wilkinson has warned of retaliation, emphasizing that no options are off the table in response to potential trade measures. He pointed out that U.S. Midwest refineries are heavily reliant on Canadian crude, making any disruption in this supply chain particularly impactful.
Outlook
As the oil market navigates these complex economic and geopolitical factors, the coming weeks are expected to remain volatile. The combination of weak economic signals from China, ongoing supply-side constraints, and looming political shifts in the U.S. will keep traders on edge as they assess the balance between demand recovery and potential market disruptions.
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