Oil prices rise on supply concerns, stronger demand

January 16, 2025 (MLN):  Oil prices gained for a second session on Thursday, supported by worries over supply amid U.S. sanctions on Russia, a larger-than-forecast fall in U.S. crude oil stocks, and an improving global demand outlook.

Brent crude futures increased by $0.19, or 0.23%, to $82.22 per barrel.

West Texas Intermediate (WTI) crude futures rose by $0.27, or 0.34%, to $80.31 per barrel by [12:25 pm] PST. 

U.S. crude oil stocks fell last week to their lowest since April 2022 as exports rose and imports fell, the Energy Information Administration (EIA) said on Wednesday.

The 2 million barrel draw exceeded the 992,000-barrel decline that analysts had anticipated in a Reuters poll.

The drop added to a tightened global supply outlook after the U.S. imposed broader sanctions on Russian oil producers and tankers, as Reuters reported.

The new U.S. sanction measures have sent Moscow's top customers scouring the globe for replacement barrels, while shipping rates have surged too.

The Biden administration on Wednesday imposed hundreds of additional sanctions targeting Russia's military-industrial base and evasion schemes.

Meanwhile, the Organization of the Petroleum Exporting Countries and its allies have been curtailing output collectively over the past two years.

They are likely to be cautious about increasing supply despite the recent price rally, said Commodity Context founder Rory Johnston.

"The producer group has had its optimism dashed so frequently over the past year that it is likely to err on the side of caution before beginning the cut-easing process," Johnston said.

Limiting oil's gains, Israel and Hamas agreed to a deal to halt fighting in Gaza and exchange Israeli hostages for Palestinian prisoners, according to an official.

On the demand front, global oil expanded by 1.2mn barrels per day in the first two weeks in 2025 from the same period a year earlier, slightly below expectations, JPMorgan analysts wrote in a note.

The analysts expect oil demand to grow by 1.4mn barrels per day year-on-year in the coming weeks.

This growth is driven by heightened travel activities in India, where a major festival gathering is taking place, as well as by travel for Lunar New Year celebrations in China at the end of January.

Some investors are also eyeing potential interest rate cuts by the U.S. Federal Reserve before the end of the year.

This follows data on an easing in core U.S. inflation, which could lend support to economic activities and energy consumption.

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