OIL FUTURES: Crude prices rangebound amid ongoing geopolitical tensions, US stock drawdown

Crude oil futures remained rangebound in the penultimate early afternoon Asian trading session of the year Dec. 30, as bullish sentiment persisted amid President-elect Donald Trump's potential implementation of broader sanctions on Iran, along with a US crude stockpile drawdown the previous week that exceeded expectations.

However, any strength in the complex was capped by the strong US dollar, which continued to weigh on sentiment, coupled with Kuwait's oil output extending gains into 2025.

At 1:26 pm Singapore time (0526 GMT), the ICE February Brent futures contract edged 9 cents/b (0.12%) higher from the previous close to $74.26/b, while the NYMEX February light sweet crude contract inched 6 cents/b (0.08%) higher from the previous close to $70.66/b.

President-elect Donald Trump is widely expected to expand oil sanctions on Iran and its trading partners to deter Tehran from advancing toward a nuclear weapon. However, some experts suggest that Trump may shift tactics in his second term, potentially using more military intervention in the region, which could further escalate tensions in the Levant and strengthen crude fundamentals as well.

In addition to the potential for a change in strategy, Trump will face challenges in implementing strict sanctions, as Iran has had years to develop methods to evade them, while his actions will likely be tempered by concerns over the impact on gasoline prices.

"The bottom line is Trump does not like high gasoline prices -- especially a rapid rise that would stoke inflation and discontent," analysts said in the S&P Global Commodity Insights' Monthly Global Crude Oil Markets Short-Term Outlook for January.

The crude complex, therefore, found some support from the Iranian sanctions, with analysts anticipating prices to rise back to $90/b or potentially even higher if 1 million b/d of Iran's oil exports were removed from the market.

Also supporting the complex, US crude inventories continued to decline in the week ended Dec. 20, falling 4.24 million barrels to 416.78 million barrels, as refinery demand remained strong, data from the US Energy Information Administration showed Dec. 27.

Crude stocks have tightened by 13.5 million barrels since the week ended Nov. 15. Net crude inputs were at 16.82 million b/d in the week ended Dec. 20, up 205,000 b/d from the previous week and nearly 600,000 b/d higher than mid-November, EIA data showed. US refiners were operating at 92.5% of capacity in the week ended Dec. 20.

"Last week's inventory drawdown and China trying to generate some consumer demand to revive growth [through treasury bonds may provide some temporary support]," SPI Asset Management Managing Partner Stephen Innes told Commodity Insights on Dec. 30.

Beijing announced Dec. 26 that it plans to issue a record-setting $411 billion worth of special treasury bonds in 2025, representing 2.5% of its total gross domestic product.

However, the impact of the bonds is expected to be subdued for crude futures, as China's shift toward electric vehicles has dampened gasoline demand in the country.

"[The bonds] might have a small effect on oil demand, but the conversion to EV rate is high," Innes said.

The strength in the complex could be temporary due to the seasonal end-of-year holiday lull, with Innes adding, "The issue in the holiday thin trade is that even small buys going through can generate bigger moves."

Gains to be hindered

Kuwait Oil, responsible for the country's domestic oil production, achieved record heavy oil output in partnership with Shell and plans to expand production further.

The crude market is expected to experience a supply glut in 2025, and as a result, any gains in crude output will likely further weaken the complex.

The all-time high output of 90,000 b/d is set to increase to 100,000 b/d by the second quarter of 2025, the company said in a Dec. 25 statement to the official news agency Kuna, citing Essa al-Maraghi, deputy CEO of the North and West Kuwait Directorate.

Meanwhile, the US dollar has continued to strengthen, following the recent hawkish tilt in the US Federal Reserve's strategy for 2025.

An appreciating dollar will make dollar-denominated assets, such as oil, become more expensive for consumers using foreign currencies.

The ICE US Dollar Index stood at 107.81 at 11:30 am Singapore time (0330 GMT) on Dec. 30, up 0.017% day over day.

Dubai swaps

The February Dubai swap was pegged at $73.34/b at 10:00 am Singapore time (0200 GMT) on Dec. 30, up 95 cents/b (1.31%) from the Dec. 27 Asian market close.

The January-February Dubai swap intermonth spread was pegged at 58 cents/b, widening 5 cents/b over the same period, while the February-March Dubai swap intermonth spread was pegged at 51 cents/b, widening 3 cents/b.

The February Brent-Dubai exchange of futures for swaps was pegged at 95 cents/b, down 4 cents/b from the previous Asian close.