Crude oil prices climbed to their highest level in three weeks, driven by fears of supply disruptions and growing demand. However, analysts are warning that the market may be over-bought, suggesting a possible price correction in the near future.
Price Increase and Market Trends
On Wednesday morning, crude oil prices continued to rise during the Asian trading session. Brent crude futures rose by 0.35%, reaching $77.32 per barrel, while West Texas Intermediate (WTI) futures gained 0.50%, reaching $74.61 per barrel. Both benchmarks hit their highest levels since October 14.
This price increase follows a nearly 1% gain in both benchmarks on Tuesday, reflecting rising concerns about supply disruptions and heightened demand for winter energy. Crude prices are on track to rise for the third consecutive week after hitting near three-year lows in early December.
Concerns Over Supply Disruptions
A significant driver of the recent price increase is the growing concern over limited oil supply, particularly from Iran and Russia. Tensions surrounding these countries have led to fears of further disruptions.
The Biden administration has announced plans to impose additional sanctions on Russian oil exports, targeting tankers carrying Russian crude priced above the $60 per barrel price cap set by the US and its European allies. Additionally, President-elect Donald Trump is expected to strengthen restrictions on Iran’s oil exports, potentially causing a disruption of up to one million barrels per day — about 1% of global supply.
In another development, China’s Shandong Port Group recently banned oil vessels sanctioned by the US, which could further strain Iranian oil supply. Shandong Port, a key oil-importing hub in China, manages three major terminals, and the embargo is expected to intensify the existing supply constraints on Iranian oil.
Moreover, Bloomberg reported that Russia’s crude oil production fell below its OPEC+ target in December, with the country producing 8.971 million barrels per day — 7,000 barrels per day short of its agreed quota.
OPEC+ has also delayed plans to increase oil production. The organization, which supplies about half of the world’s oil, decided to postpone production hikes by three months and push back its full recovery plan by a year until the end of 2026. This decision comes in response to global demand slowing down and rising US oil production.
Rising Demand for Oil
On the demand side, there are signs that oil consumption is increasing. Data from the American Petroleum Institute (API) suggests that US oil inventories may have fallen for the seventh consecutive week by January 5. If this trend is confirmed by the upcoming Energy Information Administration (EIA) report, it could point to rising energy demand, particularly during the harsh winter in the US, Europe, and Asia.
In addition, positive economic data from the US and Europe may have further supported oil prices. US job openings, as reported by the Job Openings and Labor Turnover Survey (JOLTS), reached 8.1 million in November, the highest since May 2023. The ISM Services PMI also indicated continued expansion in the services sector for the sixth straight month in December.
In the eurozone, business activity in major economies like Spain, Italy, France, and Germany surpassed expectations last month, signaling stronger economic performance.
Risk of a Technical Correction
Despite these positive factors, some analysts are warning that the oil market may be due for a technical correction. The rapid rise in prices has led to signals of the market being over-bought. Technical analysts use indicators to measure price movements in relation to historical averages, and when prices rise too quickly, they often face reversals as traders adjust to perceived overreactions.
As a result, while supply concerns and demand growth have driven recent gains, there are risks that the rally may not be sustainable in the short term.
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