Oil News: Can China’s Stimulus Offset Oversupply and Dollar Strength Risks?

Crude Oil Markets Respond to Stimulus and Cold Weather

Light crude oil futures climbed sharply last week, closing at $73.96, up $3.36 or 4.76%​. This marked the highest settlement in over two months as bullish drivers emerged from economic stimulus in China and colder weather patterns across Europe and the U.S. Traders interpreted these signals as supportive for near-term demand, pushing prices higher into the close of the trading week.

China’s Growth Measures Bolster Market Sentiment

China continues to drive market optimism with successive economic stimulus measures aimed at boosting domestic consumption and industrial activity. The announcement of higher wages for government workers, along with increased funding from ultra-long treasury bonds, signaled Beijing’s intent to revitalize economic growth​. These actions reflect China’s commitment to stabilizing its economy, countering sluggish demand concerns that had previously weighed on crude oil markets.

According to analysts, the consistent release of stimulus measures by Chinese authorities is becoming a key factor shaping oil price expectations for 2025. The prospect of accelerated growth in the world’s top oil importer is providing a floor for crude prices, offsetting concerns about oversupply from non-OPEC producers.

Weather-Driven Demand and Inventory Drawdowns

Forecasts for colder weather in the U.S. and Europe further supported oil prices, contributing to expectations of rising demand for heating oil and distillates​. UBS analyst Giovanni Staunovo noted that winter conditions could play a significant role in lifting near-term oil consumption.

Additionally, the latest U.S. Energy Information Administration (EIA) data revealed a 1.2 million barrel draw in crude stockpiles, reducing inventories to 415.6 million barrels. Although the draw was smaller than anticipated, it indicated tightening supplies. However, gasoline and distillate inventories rose as refiners boosted output, reflecting increased refinery utilization​.

Market Eyes U.S. Economic Indicators and Interest Rates

Despite the positive momentum, crude oil prices faced potential headwinds from the stronger U.S. dollar, which recorded its best week in nearly two months. The dollar’s strength reflects expectations of U.S. economic outperformance and sustained higher interest rates, both of which could dampen global demand for oil by raising borrowing costs​.

Investors are closely monitoring the Federal Reserve’s policy signals, as any indication of rate cuts could further stimulate economic activity and energy consumption. In the absence of rate reductions, however, crude oil may encounter resistance around current price levels.

Market Forecast: Bullish but Cautious

Crude oil prices are poised to hold a bullish bias in the near term, driven by economic stimulus measures and seasonal demand. However, the strength of the U.S. dollar and potential oversupply from non-OPEC producers could temper upward momentum. The market’s focus will shift to upcoming economic reports and inventory data, which will provide further clues on supply-demand balance.

Key price levels to watch include weekly support at $71.10 and weekly resistance at $74.00. A sustained move above $74.00 could open the door for further gains with $77.36 to $81.33 a potential target zone, but failure to hold current levels may result in a return to rangebound conditions between $71.10 and $68.59.

More Information in our Economic Calendar.