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Oil prices have been on a seesaw this week, climbing gradually despite a downward dip on Friday, as the market navigates concerns about China’s economic performance coupled with ongoing turmoil in the Middle East.
China’s Economic Woes
Worries about slower-than-expected Q4 economic growth in China have triggered skepticism about the country’s potential to drive global oil demand growth in the year ahead. This has subdued the otherwise positive market sentiment and contributed to a fundamental pessimism, according to CIBC Private Wealth energy trader Rebecca Babin.
Geopolitical Developments vs. Oil Market
Despite escalating tensions in the Middle East, oil prices have largely remained confined to a narrow trading range since the beginning of the year. Israeli forces continue to engage in conflict with Hamas in Gaza, and the U.S. has intervened against Houthi missile strikes in the Red Sea. However, analysts at Macquarie note that the responses from major players in the conflict have been measured, avoiding heavy escalation and keeping the market reaction in check.
Price Movements
Front-month Nymex crude (CL1:COM) for February delivery managed to end the week with a 1% increase at $73.41, despite a 0.9% drop on Friday. Meanwhile, front-month March Brent crude (CO1:COM) closed the week with a 0.3% gain at $78.56 per barrel, following a 0.7% decline on Friday.
The Strategic Petroleum Reserve
In a strategic move to rebuild inventories, the Department of Energy purchased 3.2 million barrels of oil for the Strategic Petroleum Reserve. This decision comes as part of an ongoing effort to replenish the reserve after significant sales in the aftermath of Russia’s invasion of Ukraine in 2022. Notably, the average price paid for this crude stood at $75.96 per barrel, marking a considerable contrast to the average of $95 per barrel during the 2022 sales.
Market Performance
The energy sector, represented by Energy (NYSEARCA:XLE), experienced a decline of 3% this week, ranking second from the bottom among stock market sectors.
Top Gainers and Decliners
The top 5 gainers in energy and natural resources over the past 5 days were Uranium Royalty (UROY) with a 33.4% surge, followed by Enerflex (EFXT) with a 14.4% increase. Meanwhile, the top decliners included Plug Power (PLUG) and American Battery Technology (ABAT) with drops of 27.9% each.
Sources: Reuters, BNN Bloomberg, Morningstar, Barchart.com