Oil set for weekly gain on China stimulus optimism as dollar limits upside

Oil prices edged lower on Friday but were set for a weekly rise as optimism about Chinese stimulus lifts demand expectations, even as a firmer dollar capped gains. Brent crude futures slipped by 2 cents to about $73.24 a barrel in early trading, while US West Texas Intermediate (WTI) crude hovered near $69.61, down a mere 1 cent from the previous session. Looking at the week as a whole, Brent showed a modest gain of around 0.4%, with WTI up roughly 0.2%. This subdued daily movement sits against a backdrop of evolving macro signals, including heightened expectations for fiscal support in China and shifting currency dynamics that influence global oil pricing. The market’s limited intraday volatility reflects a balance between improving demand prospects on the one hand and continued caution due to currency strength and broader economic headwinds on the other.

Table of Contents

Market snapshot and price movements

Oil trading on Friday presented a picture of stability within a broader trend of cautious optimism. Brent’s marginal dip to $73.24 a barrel contrasted with a nearly unchanged WTI, which settled around $69.61 a barrel. While these price points may appear modest, they sit atop a more meaningful weekly move where Brent recorded a small but positive advance and WTI a modest weekly gain. The yen in the price action is the interplay between two pivotal forces shaping the oil complex: improving demand expectations tied to policy stimulus, particularly from China, and the influence of the U.S. dollar’s strength, which tends to weigh on dollar-denominated commodities by making them more expensive for holders of other currencies.

The Week Ahead Context: Market participants have been weighing signs of renewed Chinese fiscal stimulus against the backdrop of a stronger U.S. dollar. China’s status as the world’s largest oil importer means that any material shift in its demand trajectory can tilt the balance for global crude markets. The latest signals from Beijing—paired with incentives aimed at reviving growth—offer some support for oil demand, especially if the stimulus translates into higher industrial activity, more fuel consumption, or increased mobility. Yet the upside largely hinges on how persistent the dollar strength remains and whether the stimulus translates into tangible, broad-based economic activity that translates into sustained oil consumption.

One of the important facets of the current setup is the schedule for energy data. The Energy Information Administration (EIA) data release has been shifted later than normal due to the Christmas holiday, with the report expected at 9 p.m. Saudi time on Friday. This delay adds a degree of uncertainty to the daily narrative, as traders have less real-time guidance before the weekend, and may lead to a tilt in risk appetite as investors reassess inventory signals and near-term demand expectations.

On the inventory front, the American Petroleum Institute (API) reported a draw in crude stocks for the previous week, with a fall of 3.2 million barrels. This draw is part of the broader market dynamics, but traders will compare API’s estimate with the official EIA tally to gauge the firmness of the supply picture. Historically, the API’s weekly draw figures can differ from official EIA data, prompting strategic shifts among traders as they position themselves for the EIA release. The divergence between API readings and EIA estimates often leads to a brief period of price adjustment as the market digests the more authoritative government data.

Analysts participating in a Reuters poll projected a crude inventories decline of about 1.9 million barrels for the week ending December 20, with additional draws anticipated in gasoline and distillates of around 1.1 million barrels and 0.3 million barrels respectively. While polls provide a directional sense of the supply-demand balance, the actual EIA release can deviate, generating volatility as traders reprice risk across energy and related markets. In this context, Brent and WTI price trajectories remain highly contingent on the evolving interpretation of inventory signals, macroeconomic cues, and the pace of any fiscal stimulus-driven demand recovery.

Within this framework, market participants continue to monitor several macro levers. The path of the U.S. dollar will be central, given that a stronger greenback tends to press on oil prices by making them more expensive for buyers holding other currencies. The dollar has rallied roughly 7 percent in the current quarter, remaining near a two-year peak against major peers, in part on expectations that the Federal Reserve will maintain a relatively restrictive stance and signal slower rate cuts in 2025. This dynamic acts as a constraint on the upside for crude priced in dollars, particularly if investors reassess inflation expectations, growth forecasts, and the timing of monetary easing.

The Chinese policy impulse also remains a critical variable. The World Bank’s upgraded outlook for China’s growth in 2024 and 2025 suggests a more resilient domestic economy than previously anticipated, albeit one that faces persistent headwinds. Authorities have indicated a willingness to mobilize substantial fiscal resources, a factor that could support energy demand through stronger industrial activity, greater mobility, and an uptick in construction-related energy consumption. Yet this potential upside is tempered by lingering confidence constraints among households and businesses and ongoing weaknesses in the property sector, which historically can dampen consumption and investment cycles in the near term.

In sum, the market’s near-term course rests on a delicate balance: improving demand prospects tied to China’s stimulus and a still-robust macro backdrop versus the headwinds posed by a sturdier U.S. currency and the possibility of uneven actualization of inventory draws. Traders will be looking to the EIA’s data for confirmation of the API’s signal and for any revision to expectations about the trajectory of oil inventories, with the Friday release acting as a critical input before a weekend pause.

Key takeaways for traders this week include: (1) how China’s policy measures translate into tangible demand signals across manufacturing and transport sectors; (2) how the Federal Reserve’s policy expectations continue to shape the dollar environment and, by extension, oil affordability for international buyers; (3) the reliability and timing interplay between API and EIA inventory data in forming short-term price direction; and (4) the potential for a modest but meaningful weekly gain in Brent and WTI if demand prospects strengthen.
The broader backdrop remains supportive for a gradual upward tilt in prices, as long as the demand impulse from China’s stimulus remains credible and the dollar’s strength does not accelerate to a level that undermines global appetite for crude.
The weekend risk factors include potential revisions to inventory estimates, changes in risk sentiment around global growth, and evolving signals from central banks about the path of monetary policy, which could influence both appetite for energy assets and the direction of the broader commodity complex.

Macro backdrop: dollar strength and policy signals

The overarching macro environment continues to shape the floor and ceiling for crude prices. The U.S. dollar’s strength has been a persistent constraint in recent weeks, reflecting traders’ expectations around the Federal Reserve’s policy stance and the relative attractiveness of U.S. assets. The greenback’s ascent has several implications for energy markets: it makes dollar-denominated commodities relatively more expensive for buyers using other currencies, potentially dampening demand in non-dollar markets. This dynamic interacts with a more optimistic global growth narrative stemming from China’s stimulus efforts, creating a tug-of-war between demand-side optimism and currency-driven price discipline.

Another important factor is the Fed’s forward guidance regarding interest rate paths. The market has priced in a scenario in which rate cuts in 2025 may occur at a slower pace than previously anticipated. If the Fed signals a more cautious stance on easing, it can reinforce dollar strength and support a cautious outlook for crude prices, even in the face of improving demand fundamentals. Conversely, a more accommodative tilt could relieve some pressure on the dollar and allow oil markets to rally on the back of improving demand signals. In this context, the price path of Brent and WTI will remain sensitive to the evolving interpretation of U.S. monetary policy, inflation dynamics, and the broader growth outlook.

Currency dynamics and energy pricing: Because crude is priced in U.S. dollars on the global market, shifts in currency value have a direct impact on affordability for buyers in emerging markets and other energy-importing economies. A stronger dollar can suppress price-sensitive demand in these regions, while a weakening dollar can enhance purchasing power and encourage higher consumption. The current environment—where the dollar sits near multi-year highs in tandem with expectations of slower rate cuts—creates a ceiling for price gains despite constructive demand signals from other parts of the world.
China’s growth trajectory and stimulus signal: The World Bank’s forecast upgrade for China’s growth in 2024 and 2025 underscores a softer, yet more resilient, economic trajectory, which is meaningful for crude demand given China’s role as the world’s largest oil importer. While the upgrade signals a more favorable environment than previously anticipated, the World Bank also warns that subdued confidence among households and businesses, coupled with ongoing property-sector headwinds, could temper the pace of improvement. The degree to which fiscal stimulus measures—such as the planned issuance of special treasury bonds—translate into higher energy consumption will be a critical variable for oil markets in the coming months.
The role of fiscal stimulus: Beijing’s plan to issue 3 trillion yuan worth of special treasury bonds next year signals a robust objective to bolster economic activity. If this stimulus materializes as higher construction activity, greater industrial output, and increased mobility, oil demand could receive a supportive boost in the intermediate term. Yet the time lag between policy issuance and realized energy consumption means that the immediate impact on prices may be modest, with longer-horizon effects depending on the pace and breadth of stimulus implementation.
The demand-supply balance: In the near term, the oil market remains mindful of inventory movements. An API-reported crude draw of 3.2 million barrels offered a point-in-time sign of tightened supply, but traders will await the EIA’s confirmation to ascertain whether the draw persisted in official data. The combination of a potentially approaching supply tightness and a gradual improvement in demand expectations can create a platform for a measured price increase, contingent on the strength and durability of the macro catalysts.

China growth outlook and fiscal stimulus

If the World Bank’s upgraded outlook for China’s growth holds, it could help sustain a more positive environment for global oil demand, given China’s status as the world’s largest importer of crude. The forecast revision to 2024 and 2025 signals that domestic demand may not deteriorate as sharply as previously thought, even in the presence of persistent confidence headwinds and property-market fragility. This nuanced improvement suggests that Chinese energy demand could gradually strengthen as the economy stabilizes and investment activities resume normalizing patterns.

The Beijing stimulus plan: The reported move to issue 3 trillion yuan of special treasury bonds next year signals a deliberate and sizable attempt to boost fiscal stimulus. What this could mean for energy markets is a potential acceleration in infrastructure spending and industrial activity, including sectors with high oil intensity. Construction, manufacturing, and transportation sectors—if beneficiaries of fiscal support—could experience increased fuel consumption and higher refinery throughput, potentially lifting crude demand.
Confidence and property sector headwinds: The warning about subdued household and business confidence, and ongoing weakness in the property sector, is meaningful for consumption and investment patterns. Property-market softness can dampen consumer purchases and auto sales, reducing near-term energy demand growth. However, fiscal stimulus can offset some of these headwinds if it effectively stimulates construction activity and manufacturing output, contributing to a more balanced demand profile for oil.
China’s oil-importer role and global implications: As the largest oil importer, China’s demand trajectory significantly influences global crude markets. Any acceleration in Chinese growth and energy consumption can provide a floor for prices by supporting global demand, while slower growth or policy drag could dampen the upside. The current mixed signals—from upgraded growth forecasts to ongoing domestic challenges—highlight the delicate balance between optimism and caution that characterizes the current market sentiment.
Potential channels of impact: The stimulus plan could manifest in several channels relevant to oil markets. Infrastructure-related energy demand could rise, especially for fuel and power needs associated with construction activity. Industrial output may rebound, boosting refinery runs and gasoline, diesel, and jet fuel demand. Transportation activity, including urban mobility and logistics, could improve on policy-driven investment in public works, urban development, and overall economic activity, thereby supporting consumption of crude products.
Risk considerations: While a stronger growth outlook paints a more positive future for oil demand, several risks could limit the upside. If confidence remains weak or if the property sector remains a drag on domestic activity, the consumption rebound may be slower and more uneven. External factors—such as global growth trajectories, trade dynamics, and currency repercussions—will shape how much of China’s growth translates into sustained oil demand. Investors will want to monitor how the stimulus is implemented, how quickly it channels into tangible activity, and whether any fiscal measures lead to spillovers that support energy markets.

Beijing’s policy measures and their energy implications

China’s policy push, including the planned issuance of large-scale treasury bonds, is a central element in the country’s strategy to revive flagging growth. The extent to which this policy action translates into higher energy demand depends on the speed, breadth, and effectiveness with which the stimulus translates into real economic activity.

Infrastructure and construction linkages: Large fiscal outlays typically stimulate infrastructure development, roads, bridges, and urban development projects. These activities are energy-intensive, requiring substantial fuel and materials inputs. The immediate impulse may be most visible in steel, cement, and machinery sectors, which in turn drive demand for diesel, petrol, and other fuels used in construction and logistics.
Industrial activity and manufacturing: A rebound in manufacturing output can improve refinery throughput and demand for crude. When factories operate at higher capacity, energy consumption tends to rise, affecting feedstock needs and product output. If stimulus policies stimulate investment in export-oriented manufacturing or domestic production chains, crude demand may show resilience through the mid-term.
Mobility and transportation: Policy-driven improvements in urban infrastructure and public transport can influence vehicle usage patterns and freight movement. Increased mobility often translates into higher gasoline and diesel demand, contributing to a tighter supply-demand balance in the oil complex. Conversely, if stimulus measures prioritize efficiency and long-term structural changes, near-term energy demand may see more moderate growth.
Financial channels and credit conditions: Beyond direct infrastructure spending, stimulus measures can influence credit conditions, project financing, and business investment. Improved access to credit can enable more energy-intensive projects, logistics expansions, and industrial growth, thereby supporting crude consumption. However, the impact hinges on the efficiency of credit allocation and the speed with which projects come online.
Market interpretation and timing: The oil market is highly sensitive to how investors interpret policy signals. Even if the stimulus plan is sizable, the market will react to perceived implementation timelines, funding channels, and the likelihood of rapid energy-intensity effects. If policymakers provide clear delivery timelines and credible confidence in the expansion of energy-related activity, oil markets may respond more positively. If the policy rollout appears slower or less assured, price gains could be more muted.
Global spillovers: China’s stimulus can have positive spillovers for global energy markets by improving demand growth in major economies connected to Asian trade and financial markets. The reinforcement of global growth expectations can support higher crude consumption on a worldwide scale, particularly if the stimulus aligns with a synchronized recovery in manufacturing and trade activity.

Inventory signals and market expectations

Inventory dynamics have consistently played a significant role in shaping daily price action for crude. The combination of API-reported draws and the official EIA tally provides traders with a nuanced view of supply and demand balance in the U.S., which often functions as a global price anchor given the country’s size and energy-intensity.

API draw and market interpretation: A reported draw of 3.2 million barrels by API suggested a tighter supply picture in the United States for the most recent week. Traders often treat API numbers as a leading indicator of the EIA’s official figures. Depending on the magnitude and timing of the draw, markets may interpret this as a signal of improving demand momentum, inventory tightening, or both. Because API estimates are based on near-term industry voice and data, they can be subject to revision and sometimes diverge from official figures, but they remain a critical early gauge in the weekly energy data cycle.
EIA data and timing: The EIA’s weekly petroleum status report is highly anticipated, as it provides the official assessment of crude stocks, gasoline, and distillate inventories. The current schedule shift—delaying release due to the Christmas holiday—adds a layer of risk for intraday price movements, as market participants adjust positions with less immediate guidance. When the EIA release arrives, it can either reinforce or contradict API findings, potentially triggering a price adjustment that reflects the revised supply-demand assessment.
Poll expectations and risk premium: Analysts participating in surveys anticipate a crude inventories decline of about 1.9 million barrels for the week to Dec. 20, with gasoline and distillates also expected to show declines of 1.1 million and 0.3 million barrels, respectively. These polls help shape market expectations, but the actual data often move markets in unexpected ways, particularly when the reported numbers deviate from consensus or official revisions alter the interpretation of demand strength.
The role of the holiday calendar: The holiday season can distort energy data timing and market liquidity. Delays in data releases can lead to sharper reactions to unexpected numbers when they do appear, as market participants adjust risk positions with less incremental information. In this environment, traders may favor a cautious stance, emphasizing the possibility of rapid re-pricing when new data arrives.
Implications for price path: If the EIA confirms a larger draw than anticipated, oil prices could edge higher, supported by the narrative of tightening supply. On the other hand, a smaller-than-expected draw or a surprise build could generate selling pressure, particularly if the broader macro environment remains challenging or if dollar strength persist. The balance of evidence from inventory data, macro signals, and currency dynamics will shape near-term price volatility.
Strategic takeaways for investors: The inventory cycle continues to be a crucial driver of price direction. Investors should monitor how the API and EIA numbers align, especially in the context of delayed releases around the holiday period. The risk-reward profile favors a cautious, data-driven approach, with attention to the interplay between inventory signals, China’s stimulus-driven demand prospects, and the evolving stance of U.S. monetary policy.

Inventory signals and market expectations (continued)

Beyond the immediate data, traders are weighing the potential implications for the broader energy complex. A sustained run of draws in crude inventories could support a constructive price environment, particularly if accompanied by continued demand resilience and a softer dollar or signs of easing inflation. Conversely, if inventories are steadier or show only modest declines, the market may turn more sensitive to macro-driven headwinds, including policy shifts in major economies and evolving risk sentiment.

Demand resilience versus supply discipline: The market’s outlook hinges on whether demand can repeatedly outpace supply in the near term. A favorable demand trajectory—driven by improved economic activity in China and stable or rising energy consumption—would provide a foundation for higher prices, even if inventories are less than deeply drawn. The ongoing macro narrative—encompassing growth expectations, consumer behavior, and industrial activity—will be essential in evaluating the durability of any price gains.
The policy backdrop and price response: If policy measures in China translate into tangible economic activity, energy-intensive sectors may extend the high-demand impulse into the next quarter. The speed at which these effects materialize will influence how aggressively the oil market prices in new demand. In turn, currency dynamics will modulate the price response via their influence on international buyers and the global cost of crude.
Long-term considerations: While near-term movements may be influenced by daily inventory signals and policy signals, the longer-term direction of oil prices will depend on structural demand growth, supply responses from producing countries, and the balance between economic expansion and inflation. The current environment—characterized by a complex mix of policy stimulus, macro momentum, and currency considerations—will likely yield a choppy but directional price path as new information arrives.

Global market sentiment and trader strategies

Market sentiment remains cautious but constructive. The combination of optimistic demand signals from China and a disciplined approach to U.S. monetary policy suggests a scenario where crude prices could move higher over the medium term if stimulus proves effective and if inventory draws persist. Traders may employ hedging strategies to manage exposure to macro risk, inventory surprises, and currency volatility, while institutions could position across futures curves to capture anticipated shifts in demand and supply dynamics.

Tactical considerations: Traders often seek to align positions with the balance of macro data, inventory signals, and policy expectations. If the EIA confirms a stronger-than-anticipated draw alongside signs that Chinese demand is improving, momentum-driven buying could emerge. Conversely, if the data disappoints or if dollar strength intensifies, a flight to safety could pressure prices.
Diversification across energy assets: In addition to crude futures, market participants may look at products such as gasoline, diesel, and jet fuel, where demand signals and refinery margins can diverge from crude price movements. A supportive demand environment could bolster refinery runs and product margins, creating a more favorable backdrop for energy equities and related markets.
Risk management: Given the cross-currents and potential volatility around holiday schedules and data releases, risk management remains critical. Traders may deploy systematic strategies to navigate the uncertainty around data timing, inventory readings, and policy announcements, while staying adaptable to shifts in the macro environment.

Regional outlook and energy market nuances

On a regional basis, the oil market continues to reflect diverse demand patterns and supply considerations. The strong emphasis on China’s growth trajectory underscores its outsized impact on global energy, but other economies also contribute to the broader demand signal. The U.S. process of inventory management and potential output changes in response to demand conditions further complicate the global balance. The broader market structure—shaped by policy decisions, currency movements, and inventory dynamics—presents both opportunities and challenges for participants seeking to navigate the oil complex in the coming weeks.

Cross-border demand shifts: An improving Chinese economy could lift demand not only for crude but for refined products, potentially affecting global refiners’ margins and trade flows. The spillover effects across Asia and other regions may influence price discovery and the pace of price adjustments in Brent and WTI.
Currency spillovers: A stronger dollar can suppress demand growth in several oil-importing nations, while a weaker dollar could unleash more buying power and lift demand. The sensitivity of oil prices to foreign exchange movements remains a central theme for global markets. The current dollar trajectory will require close watching as policy expectations evolve.
Policy certainty and market confidence: Clear, credible policy signaling from major economies can stabilize expectations and support a constructive environment for energy markets. Uncertainty around stimulus delivery, tax and spending plans, and regulatory changes can introduce volatility as market participants adjust to new risk parameters.
Energy market resilience: In the face of macro headwinds, oil markets have demonstrated resilience due to persistent demand in major economies and ongoing supply discipline among producers. The interplay of demand-led strength from China with currency constraints will continue to shape the price trajectory in the near term.

Conclusion

Oil prices are showing limited daily movement but are tilted toward a weekly rise as investors weigh the prospect of renewed Chinese stimulus against the backdrop of a firmer U.S. dollar. Brent and WTI hover in the low-to-mid $70s and high $60s, respectively, with gains for the week modest but notable in the context of a broader, cautious risk environment. The decision points remain clear: will China’s policy push translate into tangible demand growth in the near term, and will the dollar’s strength ease or persist long enough to cap upside? The answers will be intricately tied to the official EIA inventory data, the pace of Chinese stimulus implementation, and the Federal Reserve’s rate path.

As China’s growth outlook receives cautious but improved affirmation from global institutions, and as Beijing moves to deploy up to 3 trillion yuan in special treasury bonds next year, oil buyers will scrutinize the timing and reach of stimulus-driven demand across manufacturing, construction, and mobility sectors. For traders and energy consumers alike, the focus remains on inventory signals, policy developments, and currency movements that collectively shape the trajectory of crude prices in the coming weeks.

Overall, the oil market stands at a crossroads where improved demand expectations from China meet the constraint of currency strength and policy uncertainty. The market’s next moves will be dictated by the official inventory data, the effectiveness of fiscal measures in stimulating real activity, and the ongoing assessment of monetary policy prospects. The delicate balance between these forces will determine whether Brent and WTI can sustain a meaningful uptrend or retreat amid ongoing macro headwinds.