Oil Prices Increase as Investors Focus on China's Economic Recovery

Oil prices experienced a slight increase on Thursday, marking the first trading day of 2025. Investors returning from the holiday break are showing cautious optimism regarding the recovery of China’s economy and its fuel demand, especially after President Xi Jinping announced a commitment to promote growth.

By 0547 GMT, Brent crude futures had risen by 17 cents, or 0.06%, reaching $74.82 per barrel. This follows a 65 cent increase on Tuesday, which was the last trading day of 2024. Meanwhile, U.S. West Texas Intermediate (WTI) crude futures saw a 19 cent gain, or 0.26%, climbing to $71.91 per barrel, after closing up by 73 cents in the previous session.

In his New Year’s speech on Tuesday, Xi highlighted that China would adopt more proactive policies to stimulate growth during 2025. This message has resonated with investors, suggesting a sustained push towards economic recovery.

Recent data indicates positive trends in China’s factory activities. According to the Caixin/S&P Global survey published on Thursday, China’s factory activity grew in December, albeit at a slower-than-anticipated pace due to uncertainties regarding international trade and potential tariffs introduced by U.S. President-elect Donald Trump.

This data aligns with an official manufacturing survey released earlier, which indicated only minor growth in December. However, the services and construction sectors appear to be rebounding, showcasing that policy measures are starting to show effects in various areas as China prepares for potential new trade challenges.

As traders return, they are likely considering not only the economic indicators from China but also heightened geopolitical risks and the impact of Trump's management of the U.S. economy. IG market analyst Tony Sycamore commented on the situation, noting, "Tomorrow's US ISM manufacturing release will be critical to the next shifts in crude oil prices."

Sycamore also mentioned that WTI's weekly chart is reflecting a tighter trading range, suggesting a significant price movement may be forthcoming. He advised traders to wait for a clear directional break before making any trading decisions.

Additionally, investors are anticipating the release of weekly U.S. oil stocks data from the Energy Information Administration, which has been postponed until Thursday due to the New Year holiday. The poll suggests that U.S. crude oil and distillate inventories are expected to decrease while gasoline stockpiles might show an increase.

In October, U.S. oil demand hit its highest level since the onset of the pandemic, averaging 21.01 million barrels per day, which marks a notable rise of around 700,000 barrels per day compared to September. Furthermore, crude production from the United States, the world's leading producer, reached a record high of 13.46 million barrels per day in October, an increase of 260,000 barrels per day from the previous month.

Looking ahead to 2025, a Reuters monthly poll indicates that oil prices may stabilize around the $70 per barrel mark. This comes after a reported 3% decline in prices during 2024, mainly driven by weak demand from China and escalating global supplies, which counterbalance the efforts made by OPEC+ to stabilize the market.

In Europe, it’s noteworthy that on New Year’s Day, Russia suspended gas exports through pipelines in Ukraine, a situation that analysts predict will not affect consumer prices within the European Union due to alternative supply agreements made by some buyers. Hungary, however, will continue receiving Russian gas through the TurkStream pipeline.

Oil, China, Economy