Oil Prices Increase Amid Supply Concerns

By Siyi Liu

SINGAPORE (Reuters) - Oil prices have risen for the second consecutive session on Thursday, driven by increasing fears over supply disruptions. These concerns are rooted in the ongoing U.S. sanctions on Russia, a significant drop in oil stocks, and an improving outlook for global demand.

As of 0446 GMT, oil futures were up by 25 cents, or 0.3%, reaching $82.28 per barrel. This increase follows a previous rise of 2.6%, marking the highest price since July 26 of last year.

Similarly, U.S. West Texas Intermediate (WTI) crude futures increased by 28 cents, or 0.4%, to $80.32 per barrel, building on a 3.3% gain from the day before, which pushed prices to their highest level since July 19.

Data from the Energy Information Administration (EIA) indicated that U.S. crude oil stocks fell to their lowest levels since April 2022 last week. The decrease in stocks was attributed to rising exports and declining imports. The reported draw of 2 million barrels exceeded analysts' expectations, which predicted a decline of 992,000 barrels.

This reduction in inventory aligns with a tightened global supply outlook, especially after the U.S. implemented broader sanctions affecting Russian oil producers and their shipping operations. These new sanctions have prompted Russia's primary customers to search internationally for alternative sources of oil, resulting in rising shipping rates.

Moreover, the Biden administration has introduced hundreds of additional sanctions aimed at Russia's military and industrial capabilities.

In response to the rising prices, the Organization of the Petroleum Exporting Countries (OPEC) and its allies, who have been collectively reducing production for the past two years, are likely to proceed with caution regarding increasing supply. According to Rory Johnston, founder of Commodity Context, this group is hesitant to adjust its output levels despite the recent price hike. He remarked, "The producer group has had its optimism dashed so frequently over the past year that it is likely to err on the side of caution before beginning the cut-easing process."

However, some factors are moderating oil's gains. For instance, Israel and Hamas have reportedly agreed on a temporary cessation of hostilities in Gaza, along with a deal to exchange Israeli hostages for Palestinian prisoners.

On the demand side, global oil consumption increased by 1.2 million barrels per day in early 2025 compared to the same period last year. This figure, although slightly below expectations, is indicative of rising demand. Analysts at JPMorgan project that oil demand will continue to grow by 1.4 million barrels per day year-over-year in the upcoming weeks. This anticipated growth is attributed to increased travel in India, coinciding with a major festival, and the upcoming Lunar New Year celebrations in China.

Additionally, investors are considering the possibility of interest rate cuts by the U.S. Federal Reserve before year-end, following recent data indicating a decrease in core U.S. inflation. Such cuts could boost economic activities and fuel demand for energy.

Oil, Supply, Demand