Crude oil prices in January 2025 exhibited a classic push-and-pull dynamic, where supply constraints and geopolitical risks were countered by demand uncertainty and macroeconomic headwinds. Both Brent and WTI benchmarks saw significant price swings throughout the month, although the overall monthly performances were muted with Brent front-month future rising from $74.64 per barrel at the end of December 2024 to close at $76.49 on January 28, marking only a $1.85 or +1.9% month-to-date (MTD) increase.
EXECUTIVE SUMMARY
Crude oil prices in January 2025 exhibited a classic push-and-pull dynamic, where supply constraints and geopolitical risks were countered by demand uncertainty and macroeconomic headwinds. Both Brent and WTI benchmarks saw significant price swings throughout the month, although the overall monthly performances were muted with Brent front-month future rising from $74.64 per barrel at the end of December 2024 to close at $76.49 on January 28, marking only a $1.85 or +1.9% month-to-date (MTD) increase. WTI followed a similar trajectory, with grade’s near-month contract climbing from $71.72 to $73.77 per barrel, registering a $2.05 or +2.9% gain over the same period. The first two weeks of January saw strong upward momentum in crude prices, supported by Chinese economic stimulus, geopolitical tensions in the Middle East, and a tightening supply outlook. Mid-January highs of $82.63 per barrel for Brent and $80.77 for WTI were driven by strong U.S. employment data, cold weather in the Northern hemisphere, OPEC+ production discipline and amid sanctions on the Russian oil exports. However, the rally reversed in the latter half of the month due to renewed concerns over China’s economy and higher U.S. interest rate expectations. The inauguration of U.S. President Donald Trump added further pressure, with his administration signaling a push for increased domestic production.
Looking ahead to February 2025, market participants will closely watch the next OPEC+ meeting to assess if there will be any additional reaction from the block to the changes in the U.S. energy policy (“Drill, baby, drill!”). U.S. inventory trends and broader macroeconomic conditions will also remain key factors impacting on the trajectory of crude prices in coming months. Despite the pullback in crude oil prices in the second half of January, we keep our cautiously optimistic view on crude oil market perspectives in the forthcoming months. Although initially our bullish stance was based solely on over-pessimistic demand projections following several months of worsening forecasts in the second half of 2024, a couple of another supporting factors emerged in January. Firstly, recent sanctions targeting Russia's oil exports have disrupted traditional supply routes, leading refiners in India and China to seek alternative sources, notably from Middle Eastern producers. This shift has elevated demand for Middle Eastern crude, contributing to a rise in Dubai crude prices, which have already reversed their typical discount to Brent futures. Secondly, despite Trump’s intention to encourage greater U.S. oil and gas output, US oilfield service companies are encountering pricing pressures due to heightened production efficiencies and restrained capital expenditures by oil producers. Despite record production levels, the count of active rigs in the United States has declined to its lowest point since December 2021, and the number of operational fracking fleets has diminished. This trend suggests a potential deceleration in production growth, which could exert upward pressure on prices if demand remains steady or increases. Taking all of this into consideration, we again recommend to buy dips on the crude oil market. As for February 2025, we see Brent levels below $74 per barrel and WTI levels below $70 per barrel as good buying opportunities.
World oil supply inched higher in December 2024, according to the International Energy Agency, going up by 20 kbd from the November level to 103.5 mbd, translating to 390 kbd year-over-year gain, as increased output from OPEC+ African producers more than offset seasonal declines in non-OPEC+ supply. The IEA projected global oil supply to rise by 1.8 mbd in 2025 to 104.7 mbd, compared with an increase of 660 kbd in 2024. Non-OPEC+ production is set to rise by 1.5 mbd in both 2024 and 2025, to 53.1 mbd and 54.6 mbd, respectively, led by the United States, Brazil, Guyana, Canada and Argentina.
Meantime, according to the U.S. Energy Information Administration, total oil production around the world experienced a modest contraction in December 2024, declining by 0.27 mbd compared to the previous month, representing a decrease of 0.3% MoM. This dip marked the sharpest month-on-month drop in the last three months and disrupted a two-month streak of incremental growth. On a year-over-year basis, the output saw a slight increase of 142 kbd, translating to a growth rate of just 0.1% YoY. Although this represented the third consecutive month of annual growth, it was also the slowest pace of yearly expansion during this period. When compared to the five-year December average, global oil production stood out with an excess of 3.98 mbd, signifying a robust 4.0% increase above historical norms.
OPEC total crude oil production recorded an increase of 84 kbd in December 2024 compared to the previous month, representing a modest 0.3% MoM growth. This marked the third consecutive month of rising production, though the rate of increase was the slowest during this period. The monthly gain brought the overall OPEC output to its highest level in 5 months, continuing a steady upward trend. On a year-over-year basis, the OPEC output increased by 41 kbd, a 0.2% YoY rise, effectively breaking a long-standing downward trend in annual terms that had persisted for 20 months. This also represented the fastest annual rate of growth seen in 21 months, underscoring a started recovery in OPEC collective production levels. However, when measured against its five-year average for December, the OPEC total production still was 766 kbd, or -2.8%, lower, reflecting the enduring impact of cartel’s production cuts.
Meantime, the IEA continued to estimate crude oil production within the OPEC significantly higher than the cartel’s own figures, reporting a total December 2024 output of 27.43 mbd. This was 689 kbd higher than OPEC’s assessment of 26.74 mbd, representing a relative difference of +2.58%. Meanwhile, the EIA’s estimate of 26.76 mbd was closely aligned with OPEC’s figure, with an absolute difference of just +19 kbd or +0.07%. These figures reinforce the IEA’s historical tendency to overestimate OPEC’s production relative to the cartel’s own data, while the EIA generally provides estimates more consistent with OPEC’s assessments.
Total oil production among non-OPEC nations witnessed a marked decline in December 2024, reversing upward trends observed in recent months. The overall output fell by 0.71 million barrels per day (mbd) month-on-month, representing a 1.0% MoM decrease. This drop led to the lowest production level in the past three months and marked the sharpest monthly rate of contraction in the last 11 months. Year-on-year, the decline was somewhat less pronounced, with production falling by 0.39 mbd, or -0.6% YoY, breaking a robust upward trajectory that had persisted for an impressive period of 43 months (3.5 years). Despite these setbacks, the non-OPEC output for December remained 3.68 mbd higher than the five-year average for this month of a year, translating to a 5.5% increase over historical norms.
Total oil production in the United States experienced a slight decline of just 10 kbd in December 2024 relative to the prior month, marking a less than 0.1% MoM dip. Nevertheless, albeit marginal, this downturn broke a two-month streak of consecutive monthly increases and represented the most rapid month-over-month contraction in the past three months. On an annual basis, however, the production surged by 541 kbd compared to December 2023, equating to a robust 2.4% YoY increase. This uptick sustained a three-month trend of annual growth in output, which reached its fastest pace in 4 months. Additionally, December's output stood significantly above the five-year historical average for the month, exceeding it by 2.76 mbd, or +13.6%.
Shale oil production in the United States witnessed a notable decline in December 2024, marking a shift from its prior upward trajectory. The output decreased by 64 kbd, translating to a 0.6% MoM contraction compared to November. This drop interrupted a 5-month streak of consecutive monthly growth, and the pace of decline was the most rapid observed in the past 11 months. However, on an annual basis, shale oil production in the United States still expanded by 409 kbd, reflecting a year-over-year growth rate of 4.0% YoY. Despite maintaining an impressive upward trend that has persisted for 44 months, the December annual growth rate represented the slowest increase over the past 11 months. When measured against the five-year average for December, the U.S. shale oil production outpaced historical levels by a significant 1.49 mbd, corresponding to a robust 16.4% increase.
Global oil demand rose seasonally in 4Q24, posting robust annual growth of 1.5 mbd, according to the International Energy Agency – the strongest level since 4Q23 and 260 kbd higher than the previous IEA’s forecast. Following a relatively mild start to the winter heating season, the weather turned decidedly colder in December in Canada, the northern and central regions of the United States, much of Europe, Russia, China and Japan. Average heating degree days were significantly higher than a year ago and slightly above the five-year average, boosting oil demand. Colder weather across the Northern Hemisphere accompanied with lower fuel prices and abundant petrochemical feedstocks all combined to boost oil consumption. OECD oil demand for 4Q24 has been raised by 250 kbd, underpinning a 90 kbd upward adjustment to IEA’s global growth estimate for 2024. Oil demand trends in non-OECD economies were mixed. While China posted modest year-over-year growth in November, the latest data for Saudi Arabia, Brazil and India were all below expectations. All in all, estimated growth of 940 kbd in 2024 and 1.05 mbd in 2025 will push world oil demand to 104 mbd.
The U.S. Energy Information Administration also reported that global oil demand exhibited remarkable growth in December 2024. According to this agency, the overall consumption of oil around the world rose by 1.28 mbd from the prior month, representing a 1.2% MoM increase. This surge brought the global oil usage to its new all-time high of 104.65 mbd, capping off a two-month streak of rising month-on-month growth. Notably, the December figures reflected the most accelerated monthly growth rate observed in 6 months, underscoring a sharp rebound in demand. On a year-over-year basis, the consumption increased by 1.55 mbd, or +1.5% YoY, compared to December 2023, continuing an upward trend that has persisted for 7 consecutive months. This annual growth also marked the most rapid annual expansion in nearly a year. Furthermore, the global demand level in December 2024 exceeded the five-year average for the month by 4.37 mbd, translating to a substantial 4.4% increase, a testament to the enduring recovery in energy markets.
Global observed oil inventories increased by 12.2 mb to 7 655 mb in November 2024, according to the most recent data of the International Energy Agency, as higher crude oil stocks on land and on water more than offset draws in oil products. OECD total commercial oil stocks drew 20.1 mb to 2 749.2 mb, 118.3 mb below their five-year average for this month of a year, falling to the lowest level since August 2022. According to preliminary data, global oil inventories extended the gains in December 2024, led mainly by a surge in oil products on water.
Meantime, in October 2024, detailed data on which were released by the IEA, total OECD oil inventories exhibited a notable decline, marking a pivotal development in the context of recent trends. The inventories fell by 4.8 million tons compared to the preceding month, representing a 1.0% MoM contraction. This reduction brought the stockpiles to their lowest level in the past 11 months, underlining the continuation of a two-month downward trend on a month-over-month basis. The pace of this monthly decline was the steepest observed in the preceding year, reflecting heightened volatility in the supply-demand balance. On a year-over-year basis, the change was more muted, with a slight reduction of 127 thousand tons, translating to an almost flat annual dynamic. However, this marked the 4th consecutive month of year-over-year contraction, albeit at the slowest rate seen within this period. When benchmarked against the five-year average for October, total OECD oil inventories stood 43.2 million tons lower, representing a substantial 8.5% deficit, underscoring a structural tightness relative to historical norms.
Total oil inventories in the United States exhibited a modest yet noteworthy increase in December 2024, rising by 3.93 mb from the prior month, marking a 0.2% MoM uptick. This growth effectively disrupted a two-month downward trend in month-over-month dynamics, delivering the most robust rate of increase observed in the past three months. On a year-over-year basis, the total stockpiles expanded in December by 24.93 mb, reflecting a 1.6% YoY rise, which extended an uninterrupted upward trajectory that has persisted for 8 months. However, despite these gains, total oil inventories in the U.S. remained 146.57 mb below their five-year average for December, or -8.2%, underscoring a longer-term supply deficit within the market.
December 2024 revealed a clear trend of tightening crude oil inventories at the Cushing storage hub in Oklahoma. The stockpiles fell by 1.65 mb from the level of November 2024, representing a 6.8% MoM decline. This reduction brought the inventory levels to their lowest point in 14 months, underscoring the continuation of a downward trend that has persisted for two consecutive months. Unsurprisingly, the monthly pace of decline in December was the sharpest observed in three months. On an annual basis, the contraction in Cushing inventories was even more pronounced. The stockpiles dropped by 12.14 mb compared to December 2023, a sharp 35.0% YoY decrease. This rate of decline was the steepest recorded in the past 30 months, highlighting a sustained drawdown that has been intensifying over the course of the year. Furthermore, the December's inventory levels deviated significantly from seasonal averages as well. The stockpiles were 15.86 mb below the five-year average for the month, reflecting a steep 41.3% drop.
Floating oil inventories across the globe exhibited a continued contraction in December 2024, according to the data provided by Vortexa, a cargo-tracking company, underscoring a sustained downward trend. Total global offshore oil inventories declined by 2.94 million barrels (mb) from the previous month, representing a 4.1% MoM reduction. When viewed on a year-over-year basis, the decline was even more pronounced, with the inventories shrinking by 14.04 mb, equivalent to a 17.0% YoY decrease. This marks the 15th consecutive month of annual reductions, signaling a persistent drawdown in floating oil storage levels. Relative to historical benchmarks, the decline in inventory levels in December 2024 also was strikingly apparent. When compared to the five-year average for this time of year, the stockpiles were 13.78 mb lower, representing a 16.7% reduction.
Comments