By Arathy Somasekhar

HOUSTON (Reuters) -Oil prices settled little changed on Friday as markets weighed Chinese demand and interest rate-cut expectations after data showed cooling U.S. inflation.

futures closed up 6 cents, or 0.08%, at $72.94 a barrel. U.S. West Texas Intermediate crude futures rose 8 cents, or 0.12%, at $69.46 per barrel.

Both benchmarks ended the week down about 2.5%.

The U.S. dollar retreated from a two-year high, but was heading for a third consecutive week of gains, after data showed cooling U.S. inflation two days after the Federal Reserve cut interest rates but trimmed its outlook for rate cuts next year.

A weaker dollar makes oil cheaper for holders of other currencies, while rate cuts could boost oil demand.

Inflation slowed in November, pushing Wall Street’s main indexes higher in volatile trading.

“The fears over the Fed abandoning support for the market with its interest rate schemes have gone out the window,” said John Kilduff, partner at Again Capital in New York.

“There were concerns around the market about the demand outlook, especially as it relates to China, and then if we were going to lose the monetary support from the Fed, it was sort of a one-two punch,” Kilduff added.

Chinese state-owned refiner Sinopec (OTC:) said in its annual energy outlook on Thursday that China’s crude imports could peak as soon as 2025 and the country’s oil consumption would peak by 2027, as demand for diesel and gasoline weakens. 

OPEC+ needed supply discipline to perk up prices and soothe jittery market nerves over continuous revisions of its demand outlook, said Emril Jamil, senior research specialist at LSEG. 

OPEC+, the Organization of the Petroleum Exporting Countries and allied producers, recently cut its growth forecast for 2024 global oil demand for a fifth straight month.

JPMorgan sees the oil market moving from balance in 2024 to a surplus of 1.2 million barrels per day in 2025, as the bank forecasts non-OPEC+ supply increasing by 1.8 million barrels per day in 2025 and OPEC output remaining at current levels.

U.S. President-elect Donald Trump said the European Union may face tariffs if the bloc does not cut its growing deficit with the U.S. by making large oil and gas trades with the world’s largest economy.

In a move that could pare supply, G7 countries are considering ways to tighten the price cap on Russian oil, such as with an outright ban or by lowering the price threshold, Bloomberg reported on Thursday. 

Russia has circumvented the $60 per barrel cap imposed in 2022 following the invasion of Ukraine through the use of its “shadow fleet” of ships, which the EU and Britain have targeted with further sanctions in recent days.

Money managers raised their net long futures and options positions in the week to Dec. 17, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday.

(Reuters) -U.S. President-elect Donald Trump said on Friday the European Union should step up U.S. oil and gas imports or face tariffs on the bloc’s exports that include goods such as cars and machinery.

The EU already buys the lion’s share of U.S. oil and gas exports, according to U.S. government data.

No extra volumes are currently available as the United States is exporting at capacity, but Trump has pledged to further grow the country’s oil and gas production.

“I told the European Union that they must make up their tremendous deficit with the United States by the large-scale purchase of our oil and gas,” Trump said in a post on Truth Social.

“Otherwise, it is TARIFFS all the way!!!,” he added.

The European Commission said it was ready to discuss with Trump how to strengthen what it described as an already strong relationship, including in the energy sector.

“The EU is committed to phasing out energy imports from Russia and diversifying our sources of supply,” a spokesperson said.

The United States already supplied 47% of the European Union’s liquefied imports and 17% of its oil imports in the first quarter of 2024, according to data from EU statistics office Eurostat.

TARIFF THREATS

Trump, who takes office on Jan. 20, has vowed to impose tariffs of 10% on global imports into the U.S. along with a 60% tariff on Chinese goods – duties that trade experts say would upend trade flows, raise costs and draw retaliation against U.S. exports.

The U.S. ran a $208.7-billion goods trade deficit with the EU in 2023, according to U.S. Census Bureau data. Although the U.S. runs a surplus with the EU on services, Trump has focused mainly on goods trade, frequently complaining about the bloc’s car exports to the U.S. with few vehicles shipped east across the Atlantic.

German and Italian car exports currently face a 2.5% U.S. tariff, which could quadruple if Trump makes good on his threats.

Trump has also vowed to authorize hefty tariffs on the top three U.S. trading partners, Mexico, Canada and China, on his first day in office if they fail to stem illegal border crossings into the U.S. and trafficking of the deadly opioid fentanyl.

William Reinsch, a trade expert at the Center for Strategic and International Studies, said the EU could negotiate its way out of Trump’s tariffs.

“This could be a win-win, telling them to buy something they want and need anyway,” Reinsch said.

However, most European oil refiners and gas firms are private and governments have little say on where their purchases come from unless authorities impose sanctions or tariffs. The owners usually buy their resources based on price and efficiencies.

The U.S. is already producing and exporting record volumes of oil and gas and increasing those would require significant investment, especially for LNG export terminals.

Reinsch noted that while there is demand in Europe now for U.S. oil and gas to replace shunned Russian supplies, long-term demand is unclear with the transition to renewable energy sources. Companies will be reluctant to invest if they think current demand is transitory, Reinsch said.

BUYING MORE U.S. ENERGY

The EU has steeply increased purchases of U.S. oil and gas following the block’s decision to impose sanctions and cut reliance on Russian energy after Moscow invaded Ukraine in 2022.

The United States has grown to become the largest oil producer in recent years with output of over 20 million barrels per day of oil liquids, or a fifth of global demand.

exports to Europe stand at around 2 million bpd, representing over half of U.S. total exports, with the rest going to Asia.

The Netherlands, Spain, France, Germany, Italy, Denmark, and Sweden are the biggest importers, according to the U.S. government data.

“Europe is taking close to its maximum capacity for U.S. crude, meaning there is little scope for stronger imports next year,” said Richard Price, oil markets analyst at Energy Aspects. He also said refinery closures in Europe in 2025 won’t help increase imports.

The United States is also the world’s biggest gas producer and consumer with output of over 103 billion cubic feet per day.

The U.S. government projects that U.S. LNG exports will average 12 bcfd in 2024. In 2023, Europe accounted for 66% of U.S. LNG exports, with the UK, France, Spain and Germany being the main destinations.

U.S. oil production growth will likely be slow until 2030, according to the International Energy Agency.

Gas output could meanwhile rise further to meet record U.S. domestic demand and LNG exports could also increase if the government approves more LNG terminals.

The EU imported around 2 bcfd of Russian LNG in 2024 and it could move to ban those supplies and seek replacement from other sources, said Alex Froley, LNG analyst at ICIS.

($1 = 0.9623 euros)

By Scott DiSavino

(Reuters) -U.S. energy firms this week kept the number of oil and rigs unchanged for the second week in a row, energy services firm Baker Hughes (NASDAQ:) said in its closely followed report on Friday.

The oil and gas rig count, an early indicator of future output, remained at 589 in the week to Dec. 20.

Baker Hughes said that puts the total rig count down 31 rigs, or 5% below this time last year.

Baker Hughes said oil rigs were up one to 483 while natural gas rigs were down one to 102. The oil rig count was the highest since September.

The oil and gas rig count dropped about 20% in 2023 after rising by 33% in 2022 and 67% in 2021, due to a decline in oil and gas prices, higher labor and equipment costs from soaring inflation and as companies focused on paying down debt and boosting shareholder returns instead of raising output.

U.S. oil futures did not move after the Baker Hughes data, leaving them down about 3% for the year to date after dropping by 11% in 2023. U.S. gas futures are up about 49% so far in 2024 after plunging by 44% in 2023.

The 25 independent exploration and production (E&P) companies tracked by U.S. financial services firm TD Cowen said that on average the E&Ps planned to leave spending in 2024 roughly unchanged from 2023.

That compares with year-over-year spending increases of 27% in 2023, 40% in 2022 and 4% in 2021.

output was on track to rise from a record 12.9 million barrels per day (bpd) in 2023 to 13.2 million bpd in 2024 and 13.5 million bpd in 2025, according to the latest U.S. Energy Information Administration (EIA) outlook.

On the gas side, several producers reduced drilling activities this year after monthly average spot prices at the U.S. Henry Hub benchmark in Louisiana plunged to a 32-year low in March, and remained relatively low for months after that.

That reduction in drilling activity should cause U.S. gas output to decline for the first time since the COVID-19 pandemic cut demand for the fuel in 2020.

EIA projected gas output would slide to 103.2 billion cubic feet per day (bcfd) in 2024, down from a record high of 103.8 bcfd in 2023.