U.S. oil prices end higher as the dollar pares gains, while Brent crude retreats as demand concerns prevail

Price moves

• West Texas Intermediate crude for February delivery
  CL00,
  +1.27%

  CL.1,
  +1.41%

  CLG24,
  +1.41%
  edged up by 16 cents, or 0.2%, to settle at $72.56 a barrel on the New York Mercantile Exchange, after losing 0.4% a day earlier.

• March Brent crude
  BRN00,
  +0.89%

  BRNH24,
  +0.89%,
  the global benchmark, fell by 41 cents, or 0.5%, to $77.88 a barrel on ICE Futures Europe, after gaining 0.2% on Tuesday.

• February gasoline
  RBG24,
  +0.59%
  climbed by 0.6% to $2.14 a gallon, while February heating oil
  HOG24,
  +0.93%
  lost 0.3% to $2.65 a gallon.

• Natural gas for February delivery
  NGG24,
  -4.08%
  settled at $2.87 per million British thermal units, down 1%.

Market drivers

Production cuts by the Organization of the Petroleum Exporting Countries and its allies have helped the market “remain stable despite the rise in geopolitical turmoil,” Troy Vincent, senior market analyst at DTN, told MarketWatch.

Given that the tightness in supplies expected in the first quarter is created by OPEC “increasing spare production capacity, rather than underinvestment leading oil production to fail to keep up with consumption, this limits the upside price potential for bullish tail risks,” said Vincent.

Traders so far have largely looked past the threat of supply disruptions, even after a U.S.-led coalition delivered strikes against Yemen’s Houthi rebels after the militants defied an ultimatum to halt attacks on shipping.

Still, “a full breakout of the war against Israel from other Middle Eastern nations would disrupt the supply chain and send oil prices skyrocketing,” said Peter Cardillo, chief market economist at Spartan Capital, in a note.

Both WTI and Brent crude, along with other commodities, had declined early Wednesday as the ICE U.S. Dollar Index
DXY,
a measure of the currency against a basket of six major rivals, climbed to as high as 103.69, the highest in about a month.

Strength in the dollar came after Federal Reserve governor Christopher Waller said Tuesday that monetary policymakers would be in no rush to deliver rate cuts in 2024.

A stronger U.S. currency can make dollar-priced oil more expensive to overseas buyers, but the index pared much of those gains Wednesday afternoon to trade at 103.42, up less than 0.1%.

Traders also weighed the latest official Chinese data released Wednesday that showed China’s economy grew 5.2% for 2023, surpassing the target of “about 5%” that the government had set, following a pickup in growth in the fourth quarter. The reading, however, came in below some analyst expectations for growth of 5.3%.

The reading was disappointing to some, and the market may be taking it as a “sign that the Middle Kingdom’s economy continues to struggle,” said Colin Cieszynski, portfolio manager and chief market strategist at SIA Wealth Management.

Meanwhile, OPEC forecasted in a monthly report Wednesday that global oil demand will grow by 2.2 million barrels per day this year, unchanged from its previous projection.

In a separate statement on OPEC’s website dated Wednesday, OPEC Secretary-General Haitham Al Ghais said that past predictions of oil supply peaking were “way off the mark,” and misled by “mistaken assumptions on the size of the recoverable resource base, an underestimation of the impact of technology advancement, and the general resourcefulness of the industry.”

Weekly data on U.S. petroleum supplies will released by the Energy Information Administration on Thursday, a day later than usual due to Monday’s Martin Luther King Jr. holiday.

Analysts at Macquarie expect the report to show a climb of 5.5 million barrels in domestic crude inventories for the week ending Jan. 12. They also forecast supply gains of 7.5 million barrels for gasoline and 2.4 million barrels for distillates.

See: The U.S. is breaking oil-production records with fewer drilling rigs. Here’s how.