Oil prices surge on optimism over Chinese stimulus and U.S. crude inventory declines

Oil prices rallied as market sentiment improved on expectations that China's latest stimulus measures could boost demand. Additionally, a U.S. report indicating a further drop in crude oil inventories added to the bullish outlook.

Brent crude rose toward $74 per barrel, building on a 1.3% gain on Tuesday, while West Texas Intermediate (WTI) breached the $70 mark, signaling robust recovery momentum.

China’s growth push

In a bid to stimulate economic growth, China has granted local officials greater flexibility in deploying government bond revenues. This move comes alongside the decision to hold interest rates steady for now. Earlier this month, policymakers in the world’s largest crude oil importer reaffirmed their commitment to a "moderately accommodative" monetary policy stance, hinting at further stimulus measures in the near future.

U.S. inventory declines bolster confidence

Across the Atlantic, the American Petroleum Institute (API) reported a 3.2 million barrel drawdown in U.S. commercial crude oil inventories last week. If confirmed by government data due Thursday, this would mark the fifth consecutive weekly decline, signaling strong demand. Historically, crude stockpiles tend to dip in December before rebounding in the early months of the new year.

Chris Weston, Head of Research at Pepperstone, told Bloomberg, "While traders remain cautious about price interpretations at this time of year, those actively participating in the market are largely net buyers. This is underpinned by sharper-than-expected inventory declines in the U.S. and expectations of additional stimulus policies from China as we enter the new year."

Despite these bullish developments, oil prices are heading toward a modest annual decline. Since mid-October, prices have been confined within a narrow trading range as the gap between supply and demand continues to shrink.

As the year winds down, oil markets remain finely poised, with traders weighing near-term inventory trends against longer-term geopolitical and economic developments.