On the first trading day of 2025, oil prices showed strong performance, with Brent crude surpassing the $76 mark at one point, reaching a nearly two-month high, with an intraday increase of close to 2%. The market was bolstered by expectations of a cold snap and tight natural gas supply, with a low inventory backdrop further boosting market sentiment and attracting capital inflow.
Market Driven by Cold Snap Expectation and Tight Natural Gas Supply
Starting January 1st, the supply of natural gas via Ukraine from Russia was interrupted, causing European natural gas prices to soar over 4%. Although European gas inventories had not yet dropped to dangerous levels, the market was highly focused on the potential impacts of a cold snap, especially its possible disruption to U.S. oil production. In recent years, U.S. oil production has been interrupted by cold snaps several times, which has raised market concerns.
Meanwhile, the refined oil market has recently been active, with diesel prices continuously rising and the crack spread significantly rebounding. Tight natural gas supplies also spurred speculative demand for substitutes, further driving the rebound in crude oil prices.
Rising Market Sentiment Amid Low Inventory
The U.S. Energy Information Administration (EIA) in its latest report showed that despite a significant increase in gasoline and diesel inventories due to seasonal demand decline, crude oil inventories continued to slightly decrease. The low inventory status provided solid support for the market, with investors gradually focusing on the potential impact of the cold snap on crude oil production and transportation next week.
Last week, the crude oil market rebounded for several consecutive days, surpassing the December high to reach the highest level in nearly two months. Against the backdrop of low inventory, the oil sector has become a focal point for capital, and in the context of a generally weak commodity market, crude oil has become a preferred choice for bulls due to supply tightness expectations.
Capital Inflow Intensifies Monthly Spread Strengthening
The monthly spread in crude oil has strengthened significantly as oil prices rebound, reflecting the market's heightened expectations of near-term supply tightness. Although weather factors typically serve as short-term speculative themes that are hard to sustain, the expectation of an impending cold snap has temporarily shifted the market's supply and demand sentiment. After four consecutive days of increases, the momentum in the oil market's rebound has further escalated, with the market generally believing there is an opportunity for oil prices to challenge last October's highs.
Future Outlook
Cold snap weather is expected to become a focal point for the market over the next week, as investors watch for its actual impact on U.S. crude oil production. Additionally, the market will closely observe whether capital continues to chase gains and whether there is further uncertainty in global energy supply.
In a tight supply and demand context, crude oil prices are likely to remain strong in the short term, but investors need to be mindful of market rhythm to avoid volatility risks caused by excessive optimism. As the cold snap approaches, oil prices may further test higher levels, but there is also a need to be wary of unexpected factors potentially affecting market sentiment.
