Bullish Growth Prospects Trump Demand Doubts, But Oil Still Requires Fundamental Drivers

The IMF raised its projections for growth in 2024: File Image/Pixabay

 

The recent demand concerns of crude traders on Tuesday withered in the face of bullish economic news and geopolitical tensions, including the International Monetary Fund raising its global economic growth forecast.

Brent settled up 47 cents at $82.87 per barrel,  and West Texas Intermediate settled up $1.04 at 77.82.

Phil Flynn, senior market analyst at Price Futures Group Inc., said, "There's still concerns about what we've seen in China, but the fundamentals, from a supply risk standpoint, are still very bullish."

The main impetus for Tuesday's trading was the IMF raising its forecast for global economic growth to 3.1 percent this year, a two-tenths of a percentage point boost from its October forecast, based on projections for the U.S. as well as China and spurred by faster than anticipated easing of inflation.

The IMF also expected unchanged growth of 3.2 percent in 2025; the Fund's chief economist, Pierre-Olivier Gourinchas, said, "The global economy continues to display remarkable resilience, with inflation declining steadily and growth holding up; the chance of a 'soft landing' has increased.

"We are very far from a global recession scenario."

Concerns over Middle East tensions were kept alive on Tuesday by U.S. president Joe Biden declaring that he has decided on how to respond to a drone attack by Iran-backed militias without triggering a wider war.

White House national security spokesperson John Kirby told media, "It's fair for you to expect that we will respond in an appropriate fashion and it is very possible that what you'll see is a tiered approach here, not just a single action, but essentially multiple actions."

Other oil news on Tuesday had the potential for influencing crude trading in the days to come: it included analysts expecting a 900,000 barrel draw in U.S. stockpiles for the week to Jan.26, as well as Saudi Aramco stating it had received orders from Saudi Arabia's energy ministry to halt an expansion plan and maintain its maximum output capacity of 12 million barrels per day (bpd).

Meanwhile, Dan Ghali, a commodity strategist at TD Securities, pointed  out that "aggressive algorithmic buying activity" is supporting futures, but fundamental drivers are required to sustain higher oil prices.