HOUSTON (Reuters) – Oil prices slipped around 3% in 2024, marking a second consecutive year of decline, as the post-pandemic demand recovery stalled, China’s economy struggled, and non-OPEC producers increased crude production in a well-supplied global market.
Brent Crude Prices Settle Down Around 3%
On Tuesday, the last trading day of the year, Brent crude futures settled up 65 cents, or 0.88%, to $74.64 a barrel. U.S. West Texas Intermediate (WTI) crude settled up 73 cents, or 1.03%, to $71.72 a barrel.
Comparison with 2023 Prices
The Brent benchmark settled down around 3% from its final 2023 closing price of $77.04, while WTI was roughly flat with last year’s final settlement. This decline in prices can be attributed to the waning post-pandemic demand rebound and the fading impact of Russia’s 2022 invasion of Ukraine on global oil markets.
Oil Prices Expected to Trade Around $70 per Barrel in 2025
A Reuters monthly poll showed that oil will likely trade around $70 a barrel in 2025, driven by weak Chinese demand and rising global supplies. This outlook is despite efforts by OPEC+ to shore up the market through production cuts.
Global Oil Demand Growth Expectations Cut
Both OPEC and the International Energy Agency (IEA) have cut their oil demand growth expectations for 2024 and 2025 due to weaker Chinese demand. The IEA projects that the oil market will enter 2025 in surplus, even after OPEC+ delays its plan to start raising output until April 2025.
U.S. Oil Production Reaches Record High
U.S. oil production rose 259,000 barrels per day to a record high of 13.46 million bpd in October, driven by strong demand that reached the strongest levels since the pandemic. Output is set to rise to a new record of 13.52 million bpd next year, according to data from the U.S. Energy Information Administration (EIA).
Economic and Regulatory Outlook
Investors will be watching the Federal Reserve’s interest rate-cut outlook for 2025 after Fed bank policymakers projected a slower path due to stubbornly high inflation. Lower interest rates generally spur economic growth, which feeds energy demand.
Analysts Weigh in on Tightening Supply
Some analysts still believe supply could tighten next year depending on President-elect Donald Trump’s policies, including those on sanctions. He has called for an immediate ceasefire in the Russia-Ukraine war and could re-impose a so-called maximum pressure policy toward Iran, which would have major implications for oil markets.
"’With the possibility of tighter sanctions on Iranian oil with Trump coming in next month, we are looking at a much tighter oil market going into the new year,’ said Phil Flynn, a senior analyst for Price Futures Group," citing firming Indian demand and recent stronger Chinese manufacturing data.
China’s Manufacturing Activity Expands
China’s manufacturing activity expanded for a third-straight month in December, though at a slower pace, suggesting that a blitz of fresh stimulus is helping to support the world’s second-largest economy. This buoyed prices on Tuesday.
U.S. Strikes Against Houthi Targets in Yemen
The U.S. military carried out strikes against Houthi targets in Sanaa and coastal locations in Yemen on Monday and Tuesday, targeting the Iran-backed militant group that has been attacking commercial shipping in the Red Sea for over a year in solidarity with Palestinians.
Crude Oil Stocks Fall While Fuel Inventories Rise
U.S. crude oil stocks fell last week while fuel inventories rose, market sources said, citing American Petroleum Institute figures on Tuesday. Crude stocks fell by 1.4 million barrels in the week ended Dec. 27, while gasoline inventories rose by 2.2 million barrels and distillate stocks climbed by 5.7 million barrels.
Conclusion
Oil prices fell around 3% in 2024 as demand recovery stalled and China’s economy struggled. The outlook for 2025 is uncertain, with weak Chinese demand and rising global supplies expected to drive prices down. However, some analysts believe supply could tighten next year depending on President-elect Trump’s policies.
Recommendations
- Investors should watch the Federal Reserve’s interest rate-cut outlook for 2025.
- OPEC+ should continue to shore up the market through production cuts.
- Analysts and investors should monitor China’s manufacturing activity and U.S. crude oil stocks for signs of a shift in the global oil market.
Final Thoughts
The decline in oil prices in 2024 marks a second consecutive year of decline, driven by weaker demand growth and rising supplies. The outlook for 2025 is uncertain, with some analysts predicting tighter supply and others expecting continued weakness in the global oil market. Investors should remain vigilant and monitor key indicators such as interest rates, Chinese manufacturing activity, and U.S. crude oil stocks to make informed decisions about their investments.
Sources
- Reuters
- U.S. Energy Information Administration (EIA)
- American Petroleum Institute