Oil Prices Rally: First Weekly Gain in Two Months Fueled by IEA Forecast and Dollar Weakness

Oil prices have witnessed an uptick in the early Asian trading hours on Friday, marking their first weekly increase in two months. This rise is attributed to a positive forecast from the International Energy Agency (IEA) regarding oil demand for the upcoming year, coupled with a weakening of the U.S. dollar. Specifically, Brent futures experienced a rise of 9 cents to $76.70 per barrel, while U.S. West Texas Intermediate (WTI) crude saw an increase of 10 cents, reaching $71.68​​.

The modest weekly gain in both oil benchmarks has been further supported by an announcement from the U.S. Federal Reserve, indicating a likelihood of reduced borrowing costs next year​​. The dollar’s decline to a four-month low, following the U.S. central bank’s hint at an end to interest rate hikes and anticipation of lower borrowing costs in 2024, has made oil priced in dollars more affordable for foreign buyers​​.

The European Central Bank (ECB), on the other hand, has countered expectations of imminent interest rate cuts, reaffirming that borrowing costs will remain high despite lower inflation forecasts. In contrast, the IEA’s monthly report projects a rise in world oil consumption by 1.1 million barrels per day (bpd) in 2024, an increase of 130,000 bpd from its previous estimate. This upward revision is based on an improved outlook for U.S. demand and lower oil prices​​. However, this estimate is significantly lower than the Organization of the Petroleum Exporting Countries’ (OPEC) forecast for demand growth, which is projected at 2.25 million bpd​​.

Moreover, weak economic data from China, the world’s second-largest oil consumer, has exerted downward pressure on oil prices in recent weeks​​.