HOUSTON (Reuters) – Oil prices have fallen around 3% in 2024, marking a second consecutive year of decline. This downward trend is largely attributed to the stalling post-pandemic demand recovery, China’s struggling economy, and increased production from non-OPEC countries.
Brent Crude Futures: A Mixed Year
Brent crude futures settled up 65 cents or 0.88% on Tuesday, the last trading day of the year, at $74.64 a barrel. However, this price is still around 3% lower than its final 2023 closing price of $77.04.
U.S. West Texas Intermediate (WTI) Crude: Flat Year
U.S. WTI crude settled up 73 cents or 1.03% to $71.72 a barrel on Tuesday. Despite this increase, the price is roughly flat with last year’s final settlement.
OPEC’s Efforts to Shore Up the Market
In September, Brent futures closed below $70 a barrel for the first time since December 2021. This significant drop in prices has led many analysts to predict that oil will likely trade around $70 a barrel in 2025. This forecast is largely due to weak Chinese demand and rising global supplies.
A Reuters Monthly Poll
A Reuters monthly poll conducted on Tuesday revealed that oil will likely trade around $70 a barrel in 2025. The poll also highlighted the challenges facing OPEC’s efforts to shore up the market.
Weaker Demand Outlook in China
The Organisation of the Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA) have both cut their oil demand growth expectations for 2024 and 2025. This downward revision is largely due to a weaker demand outlook in China.
Global Supplies on the Rise
U.S. oil production has risen significantly, reaching a record high of 13.46 million barrels per day (bpd) in October. Output is expected to rise even further next year, with the U.S. Energy Information Administration (EIA) predicting a new record high of 13.52 million bpd.
Economic and Regulatory Outlook
Investors will be closely monitoring the Federal Reserve’s interest rate-cut outlook for 2025. The Fed has projected a slower path due to stubbornly high inflation. Lower interest rates generally spur economic growth, which in turn increases energy demand.
Supply Tightening: A Possibility?
Some analysts believe that supply could tighten next year depending on President-elect Donald Trump’s policies. Trump has called for an immediate ceasefire in the Russia-Ukraine war and may re-impose a maximum pressure policy toward Iran. These developments could have significant implications for oil markets.
Tighter Sanctions on Iranian Oil
Phil Flynn, a senior analyst at Price Futures Group, believes that tighter sanctions on Iranian oil with Trump coming into office next month will lead to a much tighter oil market in 2025.
Buoying Prices: Fresh Stimulus and Military Strikes
China’s manufacturing activity expanded for a third-straight month in December, although at a slower pace. This development suggests that fresh stimulus is helping to support the world’s second-largest economy.
The U.S. military has carried out strikes against Houthi targets in Sanaa and coastal locations in Yemen on Monday and Tuesday. These military actions have buoyed prices as they threaten global oil flows.
Crude Oil Stocks Fall, Fuel Inventories Rise
U.S. crude oil stocks fell by 1.4 million barrels in the week ended Dec. 27, while fuel inventories rose. This development has been cited by market sources using American Petroleum Institute figures on Tuesday.
Conclusion
In conclusion, oil prices have fallen around 3% in 2024 due to a combination of factors including stalling demand recovery, China’s struggling economy, and increased production from non-OPEC countries. As we look forward to 2025, investors will be watching the Federal Reserve’s interest rate-cut outlook and President-elect Trump’s policies closely.
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