Crude extends retreat ahead of US rate decision
Quantum Commodity Intelligence – Crude oil futures in Asian trading hours Monday were steady as markets held on to the modest gains posted in the previous week, while traders were looking ahead to the outlook for the New Year.
Front-month Feb25 ICE Brent futures were trading at $74.15/b (0730 GMT) versus Friday’s settle of $74.17/b. The more liquid Mar25 contract was trading at $73.72/b against a pre-weekend close of $73.79/b.
At the same time Feb25 NYMEX WTI was trading at $70.52/b versus Friday’s settle of $70.60/b, after benchmarks gained around 1.5% during the previous week.
The primary source of support heading into the New Year came from China’s announcement of a record $400 billion bond issue in a bid to boost its struggling economy.
Beijing is expected to focus on measures to boost domestic consumption and help the ailing property market, which has proved a major drag on the broader economy.
Prices have also increased on expected production discipline versus OPEC+ quotas, which dovetails with the delay in planned output hikes by the group.
Sanctions
The incoming Trump administration in the US is also expected to move on tightening sanctions aimed at Iran and possibly Venezuela, adding to the recent clampdown on Russia’s shadow fleet.
Increased sanctions primarily impact heavier and medium sour barrels, which has helped lift Dubai crude comfortably above Brent this month, with the inverse spread seen holding into the new year.
Meanwhile, elevated natural gas prices in Europe are also helping oil, increasing the likelihood of oil-to-gas switching. Hopes of a renewed Russian transit deal for pipeline gas to Europe are rapidly fading, with the current deal for shipping gas via Ukraine expiring this week.
However, markets still face headwinds as the strong dollar weighs on the commodities sector, while continued inflation fears in the US are expected to slow the rate-cutting cycle.
