OIL FUTURES: Crude rises on tentative US crude stocks draw, geopolitical tensions trail

Crude oil futures rose in the first Asian midmorning trading day of 2025 Jan. 2, as a tentative contraction of US crude inventories, coupled with the continuation of Middle Eastern geopolitical tensions, boosted the complex.

At 11:54 am Singapore time (0354 GMT), the ICE March Brent futures contract rose 33 cents/b (0.44%) from the previous close to $74.97/b, while NYMEX February light sweet crude contract increased 34 cents/b (0.47%) from the previous close to $72.06/b.

The crude complex found support from a 1.4-million-barrel draw in US crude stockpiles in the week ended Dec. 27, American Petroleum Institute data showed late Dec. 31.

Analysts surveyed by S&P Global Commodity Insights late Dec. 30 had anticipated US crude stockpiles to likely dwindle in the week to Dec. 27, slipping 3.1 million barrels to around 413.7 million barrels, marking the sixth consecutive week of decline and placing them below the five-year average of Energy Information Administration's data and at the lowest outright level since late September.

More definitive numbers are due for release by the EIA later Jan. 2.

Meanwhile, focus turns to the Middle Eastern raging conflict, as the US ramped up its strikes against Houthi rebels in Yemen, an attempt by the outgoing Biden administration to degrade the Iranian proxy's ability to disrupt shipping routes through the Red Sea.

The US Central Command carried out strikes against targets in Sana'a and coastal locations in Yemen on Dec. 30 and 31, according to a statement, following strikes on Houthi targets on Dec. 21 and 16.

The uptick in strikes shows a shift in strategy, said Brenda Shaffer, a professor and energy expert at the US Naval Postgraduate School.

"For the past four years, the Biden administration allowed the Houthis to disrupt international shipping in the Red Sea and fire missiles at Israel, because it hoped to conclude a new deal with the Houthis' sponsor -- Iran," Shaffer said.

As tensions in the Middle East worsened further, war risk premiums ingrained in the crude complex accumulated, bolstering prices.

However, the uplift garnered from the complex is expected to be temporary, with SPI Asset Management's Managing Partner Stephen Innes saying, "I'm eyeing a steeper dip to around $65/b and $60/b, respectively, influenced by a de-escalation in geopolitical tensions and OPEC's strategic maneuvers to reclaim market share from non-OPEC rivals."

Meanwhile, echoing similar sentiments, Commodity Insights analysts forecast a narrowing of crude demand in coming months from December levels owing to lower refinery runs, while crude oil supply is anticipated to remain relatively steady, with OPEC not anticipated to increase their output

Also biding well for the complex and easing demand concerns in the world's largest importer of crude, the Caixin China General Manufacturing Purchasing Managers' Index, compiled by S&P Global, fell to 50.5 in December, from 51.5 in November, but still above the 50-point mark, signaling an expansion of China's manufacturing sector.

However, the fall in the PMI indicated that the pace of growth eased since November and was marginal overall.

This figure was also in line with China's Manufacturing Purchasing Managers' Index, which stood at 50.1 in December, inching down from 50.3 the month prior, marking the third consecutive month of expansion, National Bureau of Statistics data showed Dec. 31.

However, in the weeks leading up to President-elect Donald Trump assuming the Oval Office, market participants remain wary of the potential pitfalls of Trump's tariff-centric policies, which were implemented to curb China's economic growth.

"Beyond discouraging imports, tariffs can have negative unintended consequences. If passed, aggressive tariffs could lead to higher inflation and retaliation from other countries, adding further uncertainty to an already foggy economic outlook." J.P. Morgan's Chief Global Strategist, Dr. David Kelly said Dec. 31.

Adding to the echo chamber of pessimism on China's economy, SPI's Innes warned that its economy is still in dire states, with analysts forecasting China's oil demand growth downward, from 50% to 20%.

"This drop is intensified by ongoing troubles in China's property sector and a swift pivot to electric vehicles, which is cutting into traditional oil consumption," Innes added.

Dubai swaps

The March Dubai swap was pegged at $74.04/b at 10:00am Singapore time (0200 GMT) Jan. 2, higher 51 cents/b (0.69%) from the previous Dec. 31 Asian market close.

The February-March Dubai swap intermonth spread was pegged at 57 cents/b, up 4 cents/b, while the March-April Dubai swap intermonth spread was pegged in tandem at 57 cents/b, climbing 11 cents/b over the same period.

The March Brent-Dubai exchange of futures for swaps was pegged at $1.04/b, down 6 cents/b from the previous Asian close.