Oil prices experienced a decline of approximately 3% in 2024, marking the second consecutive year of falling prices as the post-pandemic demand recovery faltered, particularly due to struggles in China’s economy and increased output from non-OPEC producers.
Key Highlights:
Market Performance:
On the last trading day of the year, Brent crude futures settled at $74.64 per barrel, up 65 cents (0.88%), while U.S. West Texas Intermediate (WTI) crude settled at $71.72, up 73 cents (1.03%).
Year-end prices for Brent were down about 3% from the previous year’s closing price of $77.04, while WTI remained roughly unchanged.
Demand and Supply Dynamics:
In September, Brent futures dipped below $70 a barrel for the first time since December 2021, reflecting a broader trend of trading under recent highs as the demand rebound from the pandemic faded.
A Reuters monthly poll indicated that oil prices are expected to hover around $70 per barrel in 2025 due to weak Chinese demand and rising global supplies, despite OPEC+ efforts to stabilize the market.
Revised Demand Growth Expectations:
Both the Organisation of the Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA) have revised down their oil demand growth forecasts for 2024 and 2025, primarily due to a weaker outlook in China.
The IEA predicts the oil market will enter 2025 in a surplus, even after OPEC and its allies postponed plans to increase output until April 2025.
U.S. Production Insights:
U.S. oil production reached a record 13.46 million bpd in October, reflecting an increase of 259,000 bpd as demand surged to levels not seen since the pandemic.
The EIA projects production will rise to a new record of 13.52 million bpd next year.
Economic and Regulatory Factors:
Investors are closely monitoring the Federal Reserve’s outlook on interest rates for 2025, as lower rates typically stimulate economic growth and energy demand.
Potential changes in U.S. foreign policy under President-elect Donald Trump could also impact oil markets, particularly concerning sanctions on Iran.
Global Geopolitical Events:
Recent U.S. military actions against Houthi targets in Yemen have added volatility to the market, as the Iran-backed group has threatened global oil flows by attacking commercial shipping in the Red Sea.
Inventory Changes:
Recent data indicated a decline in U.S. crude oil stocks by 1.4 million barrels for the week ending December 27, while gasoline inventories rose by 2.2 million barrels and distillate stocks increased by 5.7 million barrels.