OIL FUTURES: Crude prices extend gains; market digests China's loosening monetary policy stance

Crude oil futures extended gains in midmorning trading in Asia on Dec. 11, driven by Beijing's decision to adopt a looser monetary strategy -- its first significant policy shift since 2011 -- in anticipation of a potential trade war with the US as President-elect Donald Trump prepares to take office, providing some support to the struggling economy of the world's largest crude importer.

At 11:39 am Singapore time (0339 GMT), the ICE February Brent futures contract was up 39 cents/b (0.54%) from the previous close at $72.58/b, while the NYMEX January light sweet crude contract also rose 39 cents/b (0.57%) from the previous close to $68.98/b.

"OPEC's decision to delay unwinding of production cuts and China's latest supports have provided much-needed support to prices. China's oil imports rose to 48.5 [million] mt in November, bringing total imports to fall by only 1.9% year over year," Brian Martin and Daniel Hynes, research analysts at ANZ, said in a note drafted Dec. 11.

China's crude imports rose 12.2% month over month to a 15-month high of 11.86 million b/d (48.52 million mt) in November, data from the General Administration of Customs showed Dec. 10. Inflows were up 14.3% from November 2023, marking the first monthly year-over-year increase since April.

However, the country's overall imports fell 4% year over year, reflecting persistent underlying pessimism in China's economy.

"The urgency for decisive intervention is magnified by Tuesday's [Dec. 10] startling trade data, revealing a nearly 4% year-over-year nosedive in imports, a figure that shattered the most pessimistic forecasts. This alarming contraction underscores the brittle backbone of China's domestic demand, heightening the stakes for Beijing to deliver on its promises," SPI Asset Management Managing Partner Stephen Innes said Dec. 11.

"China National Petroleum Corp. released a report stating that China's oil demand may peak at 770 [million] mt in 2025, five years earlier than expected," Martin and Hynes said, lending some support to crude fundamentals in the meantime.

Meanwhile, oil bulls have continued their bargain-hunting streak, with the latest data for the week ended Dec. 3 showing that large non-commercial traders increased total oil net length over the preceding two weeks, signaling a measure of bullish sentiment.

The shift was driven by crude oil positions, where the increase in longs outpaced the rise in shorts by more than twofold.

However, gains in near-term crude prices were capped by expectations of a 499,000-barrel build in US crude oil inventories for the week ended Dec. 6, data from the American Petroleum Institute showed late Dec. 10.

This contrasted with expectations from analysts surveyed by S&P Global Commodity Insights on Dec. 9, who predicted a draw of 600,000 barrels, bringing inventories to around 422.8 million barrels for the same period, driven by continued strong refinery demand.

More definitive numbers are due for release by the US Energy Information Administration later Dec. 11.

Looking ahead, investors are anticipating the release of the OPEC Monthly Oil Market Report later Dec. 11, following the cartel's decision Dec. 5 to postpone the tapering of its production cuts.

EIA cuts 2025 oil price outlook

The US Energy Information Administration lowered its crude price forecasts by more than $2/b on Dec. 10, amid expected supply growth from OPEC+ countries and elsewhere, as the narrative turns to weakening crude fundamentals.

In its December Short-Term Energy Outlook, the EIA slashed its 2025 forecast for WTI crude to $69.12/b and Brent to $73.58/b, reducing both estimates by $2.48/b compared with its November outlook.

"Our forecast assumes OPEC+ will generally raise production in line with the new target levels through much of 2025, as the announced targets align with the production that we expect will keep oil markets relatively balanced next year," the EIA said.

While the continued OPEC+ production cuts until April 2025 will cause inventories to fall in the first quarter of 2025, the subsequent ramp-up in OPEC+ production and continued supply growth elsewhere will lead to an average inventory build over the remainder of 2025, the outlook said.

Dubai swaps

The February Dubai swap was pegged at $71.43/b at 10:00 am Singapore time (0200 GMT) on Dec. 11, climbing 45 cents/b (0.63%) from the Dec. 10 Asian market close.

The January-February Dubai swap intermonth spread was pegged at 38 cents/b, stable day on day, while the February-March Dubai swap intermonth spread was pegged at 27 cents/b, narrowing 1 cent/b over the same period.

The February Brent-Dubai exchange of futures for swaps was pegged at $1.46/b, edging 2 cents/b higher from the previous Asian close.