Oil prices rose more than 3% on Thursday, extending the previous session’s gains on a slightly improved global demand outlook for 2024 and a weaker dollar.
The West Texas Intermediate contract for January gained $2.50, or 3.60%, to trade at $71.96 a barrel, while the Brent contract for February rose $2.58, or 3.47%, to $76.84 a barrel.
Oil prices settled more than 1% higher Wednesday on a 4.3 million barrel withdrawal from U.S. crude inventories, which was larger than expected.
The International Energy Agency on Thursday said global oil demand would grow by 1.1 million barrels per day in 2024, up slightly from its previous forecast of 930,000 barrels per day.
Also, the Federal Reserve on Wednesday eased traders’ concerns by acknowledging that progress has been made on taming inflation. The central bank signaled three rates cuts for 2024, which could have a positive impact on oil demand next year. Higher interest rates slow economic growth, which weighs on crude prices.
The U.S. dollar also dropped to a four-month low Thursday after the Fed indicated the rate hikes were over. A weaker dollar makes oil cheaper, which can lift demand.
The gains this week have been a brief respite from a brutal fall.
Oil prices have plunged more $20 from September highs through Wednesday’s close as record U.S. production has collided with a weakening economy in China, leading to worries that the market is oversupplied.
Several OPEC members and their key allies such as Russia have vowed to cut supply by 2.2 million barrels per day in the first quarter of 2024, but the promised reductions have done little to ease bearish sentiment. Traders are skeptical that OPEC and its allies will deliver the cuts, which are voluntary.
OPEC blamed “exaggerated concerns about oil demand growth” for the dramatic decline in oil prices in the group’s December market report.
Yet the IEA, the West’s energy watchdog, expects demand growth to slow by half in 2024. At the same time, the U.S., Brazil and Guyana are pumping “record-breaking supply.” Production growth outside OPEC will slow next year, but is still expected to exceed demand at 1.2 million bpd.
“The continued rise in output and slowing demand growth will complicate efforts by key producers to defend their market share and maintain elevated oil prices,” the IEA said, in an apparent reference to OPEC.