This week, the crude oil market continued its volatile pattern. On Wednesday, oil prices surged once again only to quickly retreat, further widening the fluctuations. Due to multiple factors, the enthusiasm of the oil market has cooled down, and the strong gains at the beginning of the new year have been subdued.
Multiple Factors at Play: Coexisting Supply Tightness and Weak Demand
Recently, oil prices have shown strength under the supply pressure of low inventories. Factors like cold waves, geopolitical tensions, and international sanctions have provided speculative themes for the market. However, the driving force on the demand side is relatively limited. Although the cold wave has brought additional heating demand, the overall demand growth is insufficient to support a sustained sharp rise in oil prices.
The performance of the European and American refined oil markets also reflected this situation. This week, the price increase of refined oil in Europe and America stalled, and the fluctuation range was significantly smaller than that of crude oil prices. Compared to the low range in the fourth quarter of last year, current oil prices have entered a high-level tug-of-war stage.
Market Retreats After EIA Data Release
Latest weekly data from the U.S. Energy Information Administration (EIA) showed that U.S. commercial crude oil inventories continued to decline, with a significant reduction in Cushing region inventories. However, refined oil inventories are in a growth phase due to seasonal accumulation pressure. In addition, the crude oil de-inventory level shown by the EIA data was less than the decline announced by API earlier this week, which adjusted market expectations for supply side pressure.
After the data was released, oil prices retreated. This reaction also indicates increased market sensitivity to insufficient de-inventory, marking a significant restraint on the new year’s upward trend.
Trump's Policies Disrupt the Market
The market's uncertainty is also closely related to political factors. It is reported that former U.S. President Trump is considering declaring a national economic emergency to promote a new tariff plan. This news stimulated a jump in the dollar, suppressing risk assets such as oil and copper, leading to their price adjustments.
Short-Term Adjustments Likely to Persist
Wednesday’s surge and retreat marked the market's entry into a period of choppy adjustments. The tight supply fundamentals still provide support for oil prices, especially against the backdrop of low inventories, where speculation about supply issues may continue to push prices. However, weak demand performance and differences in market expectations of supply side pressure also make it difficult for oil prices to form a new sharp upward trend in the short term.
Market analysts point out that in the coming period, oil prices may repeatedly adjust within high-level volatility, with the interplay of various factors being key to influencing price fluctuations. Investors need to closely monitor market dynamics and reasonably grasp the pace of operations.
Overall, although oil prices have jumped out of last year’s low range, the probability of a rapid retreat to a low level is small. In the short term, high-level oscillation will remain the dominant feature of the market.
