Crude oil prices rose to a three-week high amid mounting concerns over supply disruptions and increasing demands. However, technical analysts caution that oil markets may be over-bought.
ADVERTISEMENTCrude oil prices extended gains in the Asian session on Wednesday, with the Brent futures up 0.35% to $77.32 per barrel, and the WTI futures rising 0.50% to $74.61 per barrel at 4:35 am CET, both making their highest levels since 14 October.
The price increase follows a nearly 1% gain in both benchmarks on Tuesday, underscoring how concerns over supply disruptions and rising winter energy demands have overshadowed broader economic uncertainties. Crude prices are on track for a third consecutive weekly gain after hitting near three-year lows in early December.
Potential supply disruptions due to geopolitical tensions
Mounting concerns over limited supply from Iran and Russia buoyed crude futures prices recently. The Biden administration plans to impose more sanctions on Russia’s oil exports ahead of Donald Trump’s inauguration on 20 January.
The outgoing US administration will target tankers hauling Russian crude products priced above the $60 per barrel price cap that the US and its European allies have imposed. Meanwhile, Trump is expected to reinforce restrictions on Iran’s oil exports upon taking office, potentially causing a supply disruption of up to one million barrels per day – approximately 1% of global supply.
On Monday, China’s Shandong Port Group issued a notice banning the US-sanctioned oil vessels, three oil traders told Reuters. Shandong Port, a key oil-importing hub for China’s eastern coast, manages three major terminals. This embargo is expected to exacerbate supply constraints on Iranian oil.
Additionally, Bloomberg reported Russia’s crude production in December fell below OPEC+ target, with the country producing 8.971 million barrels per day of crude in the final month of 2024 -7,000 barrels per day short of its agreed quota.
OPEC+ has postponed its plan to unwind the joint output cuts amid a slowdown in global demand and rising US production last month. The organisation, supplying about half of the world’s oil, decided to delay hiking its production by three months and a full recovery in output by a whole year until the end of 2026.
Increasing demands
Data from the American Petroleum Institute (API) showed that the US oil inventory may have fallen for the seventh consecutive week ending 5 January. Should this trend be confirmed by the Energy Information Administration (EIA) report later today, it could signal rising energy demand amid a harsh winter in the US, Europe, and Asia.
Positive economic data recorded in the US and Europe may have added to the upside momentum of oil prices. The US JOLTs job openings rose to 8.1 million at the end of November, the highest level since May 2023. The ISM Services PMI also indicated that economic activity in the services sector expanded for the sixth consecutive month in December.
In the eurozone, business activities accelerated more than expected in major economies, including Spain, Italy, France, and Germany, last month.
A potential technical correction
However, some analysts warn that the rally in oil prices may soon run out of steam. Crude markets may face a potential technical correction risk due to over-bought signals. Technical analysts often use indicators that measure price movements relative to historical averages. Rapid price increases or decreases frequently trigger reversals as market participants adjust to perceived overreactions.