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

By Florence Tan

SINGAPORE (Reuters) - Oil prices saw a modest increase on Thursday, marking the first trading day of 2025. Investors returning from their holiday breaks are paying close attention to the state of China's economy and its fuel demand, especially following Chinese President Xi Jinping's commitment to stimulate growth.

Brent crude futures climbed by 16 cents, or 0.21%, reaching $74.80 a barrel by 0829 GMT. This rise follows a 65-cent increase on the last trading day of 2024. Similarly, U.S. West Texas Intermediate (WTI) crude futures also gained 16 cents, or 0.22%, to settle at $71.88 a barrel, building on a 73-cent gain in the previous session.

In his New Year's message delivered on Tuesday, President Xi stated that China plans to adopt more proactive policies to stimulate economic growth in 2025.

Recent data indicates that China's factory activity grew in December, as per a private-sector survey by Caixin/S&P Global; however, the growth was slower than anticipated due to concerns regarding trade and the potential impact of tariffs proposed by incoming U.S. President Donald Trump.

The findings were consistent with an official report released earlier, which suggested that China’s manufacturing sector only showed slight growth in December. Meanwhile, the services and construction sectors demonstrated signs of recovery, indicating that government stimulus measures are starting to take effect as China braces itself for possible new trade challenges.

Returning traders are reportedly assessing the heightened geopolitical risks alongside the prospective influence of President Trump's economic policies, which may drive the U.S. economy to operate at full capacity while also introducing tariffs.

“Tomorrow’s US ISM manufacturing report will be crucial for determining oil price movements,” noted IG market analyst Tony Sycamore.

Sycamore further mentioned that WTI's weekly chart is showing a tightening range, implying that significant price movement is likely on the horizon. He advised that rather than trying to predict the direction of this breakout, it would be wiser to wait for clarity before making trading decisions.

Additionally, investors are keenly awaiting the release of U.S. oil stocks data from the Energy Information Administration (EIA), which has been postponed to Thursday due to the New Year festivities. Preliminary forecasts suggest that both oil and distillate stockpiles may have declined over the past week while gasoline inventory levels could have risen, as indicated by an extended Reuters poll.

In October, U.S. oil consumption reached its highest level since the onset of the COVID-19 pandemic, averaging 21.01 million barrels per day. This figure is an increase of approximately 700,000 barrels per day compared to September. The report also showed that the crude output from the United States, which is the world's leading producer, rose to a record 13.46 million barrels per day in October, marking a 260,000 barrels per day increase over the previous month.

Looking ahead to 2025, oil prices are projected to hover around $70 per barrel, which would represent a decrease for the third consecutive year following a 3% drop in 2024. This anticipated trend is attributed to weaker demand from China and a surge in global supplies, counteracting the efforts of OPEC+ to stabilize the market.

Additionally, on New Year’s Day, Russia halted its gas exports through the aging Soviet-era pipelines that run through Ukraine. While this expected pause in supply is not expected to spike prices for European Union consumers—many of whom have secured alternate sources—Hungary will continue to receive Russian gas via the TurkStream pipeline located under the Black Sea.

Oil, China, Economy