Oil Prices Rise on Cold Weather and European PMI Data; Dollar Strength Limits Gains

Oil prices climbed on Monday, supported by colder weather and better-than-expected services activity in Europe. However, gains were capped by the strength of the dollar.

By 08:35 ET (13:35 GMT), WTI crude for March delivery rose 0.6% to $76.91 a barrel, while Brent crude rose 0.5% to $74.36 a barrel. The recent gains in crude prices have been driven by hopes of increasing demand in China, as well as anticipation of more stimulus measures from Beijing.

The dollar’s strength, hitting two-year highs, has tempered the gains in crude prices ahead of key economic reports scheduled for the week.

Cold Weather Boosts Demand Outlook

Cold weather in the US and Europe is expected to boost demand for oil, potentially tightening supplies in both regions. A powerful winter storm sweeping through the US, driven by a polar vortex, is expected to bring snow, ice, and sub-zero temperatures. Additionally, a modest recovery in the eurozone’s services industry in December has lifted sentiment.

China, the world’s largest oil importer, is also in focus as traders anticipate more stimulus measures to combat economic weakness in the country.

Sanctions and Supply Concerns

Saudi Aramco, the top oil exporter, has raised crude prices for buyers in Asia, signaling firmer demand expectations. However, the possibility of stronger Western sanctions on Iranian and Russian oil shipments could disrupt supply.

Analysts are also monitoring the incoming US administration’s stance on Iran, as stricter enforcement of sanctions could tighten the market but provide an opportunity for OPEC+ to increase supply.

Dollar Strength and Rate Cut Expectations

Despite the dollar’s strength, oil prices have been resilient. The greenback’s surge to two-year highs is fueled by expectations that the Federal Reserve will adopt a slower pace of interest rate cuts. Federal Reserve officials have reiterated their commitment to fighting inflation, suggesting that rates will remain relatively high for longer.

Key economic data releases this week, including US jobs data for December, will shed more light on the market outlook. Additionally, protectionist policies under the new US administration could further support the dollar but may dampen global oil demand.

Overall, the combination of weather-related demand, geopolitical tensions, and monetary policy expectations are shaping the oil market’s trajectory in the near term.