Well-supplied oil market likely to keep pressure on prices

The unwinding of Opec+ production cuts and increased supply from non-Opec+ producers are expected to lead to a well-supplied oil market in 2025, analysts say. This could result in moderate inventory builds as global oil demand growth slows.

Oil prices rose more than one per cent on Monday, supported by strong factory activity in China and escalating tensions in the Middle East, where Israel resumed attacks on Lebanon despite a ceasefire deal, Reuters reported. Brent crude futures climbed 91 cents, or 1.27 per cent, to $72.75 a barrel by 1357 GMT while US West Texas Intermediate crude rose 97 cents, or 1.43 per cent, to $68.97.

The global oil market has been a rollercoaster of volatility and uncertainty over the past year.

Demand-supply dynamics

The global oil supply has seen significant fluctuations. In October 2024, the return of Libyan barrels to the market more than offset lower Kazakh and Iranian supplies, leading to a rise in global oil supply by 290,000 barrels per day to 102.9 million bpd, data from the International Energy Agency (IEA) showed. The Oganisation of Petroleum Exporting Countries and its allies, collectively known as Opec+, delayed the unwinding of extra voluntary production cuts to January 2025, at the earliest. Non-Opec+ producers are expected to boost supply by roughly 1.5 million bpd in both 2024 and 2025.

World oil demand is forecast to expand by 920,000 barrels per day (bpd) in 2024, reaching 102.8 million bpd, and just shy of 1 million bpd in 2025, to 103.8 million bpd, according to the IEA. The slowdown in growth from recent years reflects the end of the post-pandemic release of pent-up demand, below-par global economic conditions, and the deployment of clean energy technologies.

Brent crude oil futures experienced a range-bound trend, peaking at $80.90 per barrel early in October 2024 due to escalating tensions in the Middle East but subsequently easing to close the month at around $73 per barrel. Speculative length in paper markets remains near historical lows.

While supply is expected to remain robust, demand growth will likely slow down, leading to moderate price declines. Geopolitical tensions and the clean energy transition will continue to shape the market dynamics, making it essential for stakeholders to stay vigilant and adaptable, analysts say.