The oil market continued to trend lower on Wednesday on concerns over demand following weak economic data from China.

RecapThe oil market continued to trend lower on Wednesday on concerns over demand following weak economic data from China. China’s economy in the fourth quarter expanded by 5.2% on the year, missing analysts expectations and calling into question forecasts that see Chinese demand fueling 2024 global oil demand growth. Also, the strength in the dollar continues to pressure the oil market. The market traded mostly sideways in overnight trading before it sold off more than 2.6% as it posted a low of $70.50 in morning trading. However, the market bounced off its low and retraced all of its earlier losses as OPEC kept its forecast for relatively strong growth in global oil demand in 2024. It also said that 2025 will bring “robust” increase in oil use, led by China and the Middle East, suggesting the market may be undersupplied. The oil market rallied to a high of $72.77 ahead of the close. The February WTI contract settled up 16 cents at $72.56 and later posted a new high of $72.82 in the post-settlement period. The March Brent contract settled down 41 cents at $77.88. Meanwhile, the product markets ended mixed once again, with the heating oil market settling down 70 points at $2.6536 and the RB market settling up 1.35 cents at $2.1354.

Technical AnalysisThe crude market, which has been trading in a sideways range amid the tension in the Middle East, will seek further direction from the weekly petroleum stocks reports. The inventory reports are expected to show a small draw in crude stocks and builds in product stocks. The market is seen finding resistance at its high of $72.82, $72.88, $73.44, $73.56, $73.95 and $75.25. Further upside is seen at $75.66, $76.18 and $76.81. Meanwhile, support is seen at its low of $70.50, $70.13, $69.28 and $67.98.

Fundamental News: The EIA said retail gasoline prices in the U.S. could fall this year due to an increase in inventories and refining capacity, while reduced consumption could lower them further in 2025. The EIA sees diesel consumption likely increasing from last year in both 2024 to 2025, expecting it to grow by 1.3% or 50,000 bpd this year due to continued economic growth.

In its monthly report, OPEC kept its forecast for relatively strong growth in global oil demand in 2024 and said 2025 will see a "robust" increase in oil use, led by China and the Middle East. OPEC said world oil demand will increase by 1.85 million bpd in 2025. For 2024, OPEC sees demand growth of 2.25 million bpd, which was unchanged from last month. The OPEC report also noted that OPEC oil production increased slightly in December led by Nigeria, despite ongoing output cuts by the wider OPEC+ alliance to support the market. OPEC’s crude oil output increased by 73,000 bpd to 26.7 million bpd in December. OPEC adjusted its production figures lower to reflect the exit from the group of Angola. It said OPEC’s crude share of the world oil market was 26.5% in December. OPEC said the price decline in December was primarily driven by selling pressure from speculators.

OPEC’s Secretary General, Haitham Al Ghais, said forecasts that oil demand is peaking will prove just as misguided as previous predictions that suply was reaching its end.

The IEA’s Executive Director, Fatih Birol, said the IEA expects oil markets to be in a "comfortable and balanced position" this year, despite Middle East tensions amid an increasing supply and slowing demand growth outlook. He noted that so far production has not been impacted by the attacks on tankers. He said that he did not expect a major impact on oil prices, unless one or more major oil producing countries were to get directly embroiled in the conflict.

Saudi Aramco’s CEO, Amin Nasser, said global oil markets will cope with Red Sea disruptions in the short run, although prolonged attacks by the Houthis on ships would lead to a shortage of tankers due to longer voyages and a supply delay.

Early Market Call – as of 8:25 AM EDT

WTI – February $72.54, down 2 cents

RBOB – February $2.1202, down 1.52 cents

HO – February $2.6432, down 1.04 cents

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