Oil News: Rally Extends to Third Week—What’s Driving Crude Prices Higher?

Oil Prices Rally: What Drove the Market Higher Last Week?

Crude oil markets closed the week with a strong rally, marking their third consecutive week of gains. Prices were driven by a mix of geopolitical tensions, supply constraints, and robust seasonal demand. Here’s what moved the needle in the energy markets last week.

Last week, Light Crude Oil futures settled at $76.57, up $2.61 or +3.53%.

Did Sanctions on Russia Set the Stage for Supply Disruptions?

New sanctions imposed by the U.S. on Russia’s oil industry intensified supply concerns. The measures targeted Russian firms, executives, and shadow fleet tankers facilitating oil exports, tightening the market. Analysts noted that India and China, key buyers of Russian oil, might need to source barrels from alternative suppliers, including the Middle East. This shift raised the geopolitical risk premium for crude prices and highlighted the market’s sensitivity to supply disruptions​.

Cold Weather and Rising Heating Fuel Demand: A Perfect Storm?

Harsh winter weather across the U.S. and Europe drove demand for heating fuels, supporting oil prices. Meteorologists forecast colder-than-average temperatures in major consuming regions, boosting consumption of heating oil, kerosene, and LPG. Traders expect this seasonal demand to persist, providing a near-term lift to crude prices​.

China’s Economic Stimulus: A Game-Changer for Demand?

Optimism surrounding China’s potential economic stimulus fueled bullish sentiment. As the world’s second-largest oil consumer, expectations of increased industrial activity and transportation demand from China have bolstered forecasts for global consumption. These developments coincided with rising spot premiums for Middle Eastern crude, further reinforcing the demand outlook​​.

Did OPEC Tighten the Market Further?

OPEC’s December production data revealed a decline of 50,000 barrels per day, led by maintenance in the UAE and reduced output from Iran. These reductions come against a backdrop of steady production from Saudi Arabia and Iraq, adhering to OPEC+ agreements to curb supply. This tightening narrative adds another layer of bullish support to crude prices​.

Crude Oil Market Outlook: Can the Rally Continue?

Last week’s rally reflects a convergence of bullish factors, including sanctions-induced supply risks, seasonal demand strength, and hopes for stronger consumption in China. While these elements provide a solid foundation for further gains, traders remain watchful of potential headwinds, such as the strong U.S. dollar and fluctuating inventory data.

The focus in the coming weeks will center on geopolitical developments, China’s economic policies, and weather-driven demand, as these will dictate the next moves in the crude oil markets.

Technically, the market crossed to the strong side of a major long-term pivot at $74.00. This move fueled a surge through the October main top at $77.36. If buyers can build on this move then look for the rally to possibly extend into the April main top at $81.33. The ultimate target is $87.11.

The market will face risks if $74.00 fails as support. This could lead to a pullback into $71.10 to $68.69.

More Information in our Economic Calendar.