On Monday, international oil prices rose in light end-of-year trading as investors bet on colder temperatures in the U.S. and Europe boosting heating demand, thereby increasing the demand for diesel and other fuels. Brent crude futures rose 0.3% to settle at $74.39 per barrel. The more actively traded March contract rose 20 cents, to $73.99 per barrel. U.S. crude prices increased by 0.6% to settle at $70.99 per barrel.
Ultra-low sulfur diesel futures performed particularly well, closing up 2.5% at $2.30 per gallon, the highest point since November 5. Fuel distributor TACenergy noted in its report: "Diesel prices are leading the refined oil market as investors are concerned that cold weather in the coming weeks will increase diesel heating demand, with diesel serving as an alternative to natural gas for heating."
Cold Weather Expectations and Increased Demand Support the Market
According to new data from the London Stock Exchange Group (LSEG), U.S. heating degree days are expected to rise to 499 over the next two weeks, up from the previous forecast of 399 days, indicating a significant increase in energy demand due to the colder weather. Additionally, meteorologists predict that temperatures in Europe will further drop in January, further boosting the market's optimistic outlook on fuel demand.
Boosted by weather forecasts and rising export demand, U.S. natural gas futures surged 17%, reaching their highest level since January 2023.
Inventory Decline Provides Support for Oil Prices
The market is also focused on U.S. crude inventory data. A preliminary Reuters survey indicates that last week U.S. crude inventories are expected to decrease by about 3 million barrels, and the declining inventory trend may provide additional support for oil prices. In the week ending December 20, U.S. crude inventories fell more than expected as refineries ramped up production and the holiday season boosted fuel demand. As a result, last week Brent crude and U.S. crude prices both rose by about 1.4%.
Focus on Major Economic Data Impacting Future Demand
Investors are also awaiting the upcoming economic data releases, including China's factory Purchasing Managers' Index (PMI) on Tuesday and the U.S. ISM manufacturing survey on Friday. These data will provide crucial insights into the economic health of major oil-consuming countries and may significantly impact future oil price movements.
The continued expectation of cold weather, declining inventories, and economic data will collectively influence the performance of the oil market in the new year. Investors need to closely monitor the combined impact of these variables on demand and prices.
