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Oil market to face pressure from multiple sources

A host of factors are likely to impact energy prices in the new year

Published: Thu 19 Dec 2024, 9:24 PM

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An oil pump jack in Nolan, Texas. Prices are likely to remain under pressure in 2025 due to a variety of factors. — AFP file

An oil pump jack in Nolan, Texas. Prices are likely to remain under pressure in 2025 due to a variety of factors. — AFP file

The global oil market is poised for a complex year in 2025, facing pressure from several key factors: Opec’s output decisions, potential increases in US production under a new Trump administration, slowing demand from China, and the rising use of renewable energy.

Each of these elements will play a crucial role in shaping oil prices and market dynamics, analysts say.

Oil prices rose slightly on Thursday, supported by falling US crude inventories, though gains were limited after the US Federal Reserve signalled it would slow the pace of interest rate cuts in 2025, Reuters reported.

Brent crude futures rose 44 cents, or 0.60 per cent to $73.83 a barrel by 1414 GMT. US West Texas Intermediate (WTI) crude for January delivery gained 68 cents, or 0.96 per cent to $71.26. The more active WTI contract for February rose 52 cents to $70.54.

The US Energy Information Administration (EIA) expects Brent crude oil spot price will remain close to its current level in 2025, averaging $74 per barrel for the year. As US output increases, the EIA expects net US imports of crude oil falling by more than 20 per cent to 1.9 million barrels per day (bpd) in 2025, which would be the least net imports of crude oil in any year since 1971.

Fitch expects oil prices to decrease to $70 per barrel in 2025 from an average of $80 in 2024. This is “due to moderating demand growth and higher production from non-Opec+ countries, leading to oversupply,” the rating agency said in a report.

JPMorgan sees the price of Brent oil averaging $73 per barrel in 2025 and expects it to close the year firmly below $70per barrel, with US West Texas Intermediate at $64 per barrel.

Opec’s output decisions

The Organisation of the Petroleum Exporting Countries (Opec) and its allies, known as Opec+, have decided to delay the start of oil output increases until April 2025 and extend the full unwinding of cuts until the end of 2026. This decision is driven by weaker-than-expected global demand and competition from non-Opec producers. By withholding 5.86 million barrels per day (bpd) of output, Opec+ aims to manage supply cautiously and avoid a market surplus.

According to Opec’s latest forecast, global oil demand is expected to rise by 1.61 million barrels per day (bpd) in 2024, down from an earlier estimate of 1.82 million bpd. For 2025, Opec has revised its growth estimate to 1.45 million bpd, down from 1.54 million bpd. This downward revision reflects weaker-than-expected demand, particularly from China and other Asian countries. China’s oil demand growth has been downgraded to 430,000 bpd in 2024, compared to an earlier forecast of 760,000 bpd. This adjustment is due to China’s slowing economic growth and reduced industrial activity.

US production under a new Trump administration

The return of Donald Trump to the US presidency could lead to increased oil production. Trump’s administration has historically favored deregulation and support for the fossil fuel industry, which could result in higher production levels. This increase in supply could put downward pressure on global oil prices, especially if it coincides with Opec’s output decisions.

Slowing demand from China

China’s economic slowdown is another critical factor affecting global oil prices. As the world’s second-largest oil consumer, any reduction in China’s demand can significantly impact the market. Analysts have noted that China’s sluggish economic recovery and reduced industrial activity have already placed pressure on oil prices. If this trend continues, it could lead to a surplus in the global oil market, further driving prices down.

Rising use of renewable energy

The increasing adoption of renewable energy sources is also expected to influence oil prices in 2025. As countries around the world continue to invest in solar, wind, and other renewable technologies, the demand for oil may decline. This shift towards cleaner energy sources is part of a broader global effort to reduce carbon emissions and combat climate change. The growing use of electric vehicles and improvements in energy efficiency will further reduce the reliance on oil, potentially leading to lower prices.

In summary, the outlook for global oil prices in 2025 is shaped by a combination of Opec’s output decisions, potential increases in US production, slowing demand from China, and the rising use of renewable energy. While Opec’s cautious approach aims to balance the market, the potential increase in US production and China’s economic slowdown could lead to a surplus and lower prices. Additionally, the growing adoption of renewable energy will continue to reduce oil demand, further influencing prices.

The interplay of these factors will determine the trajectory of oil prices in 2025, making it a year of significant interest for market analysts and industry stakeholders alike.



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