US Avoids Shutdown; Crude Oil Market Eyes Demand Boost Amid Trade War Concerns

Key Highlights

1. Crude Prices Rise: Brent and WTI futures gained 0.51% and 0.58% on relief over U.S. spending legislation, respectively.
2. Demand Boost Factors: Lower inflation data raised hopes for rate cuts in 2025, improving crude demand prospects.
3. Pipeline Resumes: The Druzhba pipeline restarted after a brief halt, ensuring a steady oil supply to Europe.
4. Trade Tensions: U.S. President-elect Trump's tariff warnings to the EU added geopolitical uncertainties.

Crude Oil Prices Climb Amid U.S. Spending Relief

• Crude oil futures traded higher on Monday morning as markets heaved a sigh of relief after the US avoided a potential government shutdown over the weekend.
• March Brent oil futures were at $72.93, up by 0.51 percent, and February crude oil futures on WTI (West Texas Intermediate) were at $69.86, up by 0.58 percent.
• January crude oil futures were trading at ₹5,961 on Multi Commodity Exchange (MCX) during the initial hour of trading on Monday against the previous close of ₹5,938, up by 0.39 percent, and February futures were trading at ₹5,954 against the previous close of ₹5,924, up by 0.51 percent.

Potential Demand Drivers: Rate Cuts and Holiday Season Travel

• Fears of a shutdown rose in the US after the President-elect Donald Trump criticized a funding bill. He also proposed a revised bill that sought to increase the debt limit. The revised bill was rejected by the lawmakers. 
• However, the market players were relieved after the US Congress passed a spending legislation late on Saturday night avoiding the possibilities of a week-end shutdown in the US. The US President, Joe Biden, approved the spending bill providing government funding until March.
• A US shutdown would have impacted the travel during the holiday season in the US. This, in turn, would have impacted the demand for commodities such as crude oil.
• Meanwhile, the latest PCE price index data in the US also supported the prices of crude oil. This preferred inflation gauge of the US Federal Reserve read lower than expected for November. 
• This raised hopes of further rate cuts in 2025. A reduction in interest rates would help boost demand for commodities such as crude oil.
• The fears of a potential trade war between the US and European Union (EU) surfaced after the US President-elect, Donald Trump, warned of tariffs on the EU, if it did not conduct large-scale purchases of oil and gas from the US.

Petroleum News: European Oil Supply Stabilized

• Concerns about European supply eased on reports the Druzhba pipeline, which sends Russian and Kazakh oil to Hungary, Slovakia, the Czech Republic and Germany, has restarted after halting on Thursday due to technical problems at a Russian pumping station.
• Shipments resumed on Saturday, according to Belarus’ BelTa state news agency. On Sunday, Hungarian Foreign Minister Peter Szijjarto said supplies on Druzbha to the country had restarted.
• Before the halt, the pipeline was shipping 300,000 barrels per day of crude.
• U.S. President Donald Trump on Friday urged the European Union to increase U.S. oil and gas imports or face tariffs on the bloc’s exports.

Expert Opinion on Petroleum Market Outlook

• The U.S. EIA has revised its global and U.S. oil demand forecasts downward, forecasting a 1.2 mbpd growth next year—300,000 bpd lower than previous estimates. 
• Additionally, U.S. oil production is expected to grow, though at a slower pace than previously forecasted, with 13.22 million bpd expected in 2024, slightly below prior projections of 13.25 million bpd.