Summary
Oil prices declined by around 3% in 2024, marking a second consecutive year of decline. The slump can be attributed to several factors, including the post-pandemic demand recovery stalling, China’s economy struggling, and non-OPEC producers pumping more crude into the global market.
Oil Prices Settle Lower for 2024
Brent crude futures settled at $74.64 a barrel on Tuesday, up 65 cents or 0.88% from the previous day. However, this marked a decline of around 3% from its final closing price in 2023 at $77.04. U.S. West Texas Intermediate (WTI) crude settled at $71.72 a barrel, down roughly flat compared to last year’s final settlement.
Factors Contributing to Decline
Several factors contributed to the decline in oil prices:
- Post-pandemic demand recovery stalling: The rapid rebound in global demand, which drove up prices earlier this decade, has begun to slow.
- China’s economy struggling: A weaker demand outlook in China has forced both OPEC and the International Energy Agency (IEA) to cut their oil demand growth expectations for 2024 and 2025.
- Rising global supplies: Non-OPEC producers such as the United States have increased output, adding to the already well-supplied global market.
Outlook for 2025
The Reuters monthly poll showed that oil will likely trade around $70 a barrel in 2025 due to weak Chinese demand and rising global supplies. The IEA expects the oil market to enter 2025 in surplus, even after OPEC and its allies delayed their plan to start raising output until April 2025.
U.S. Oil Production on the Rise
U.S. oil production rose by 259,000 barrels per day to a record high of 13.46 million bpd in October. Output is expected to reach a new record of 13.52 million bpd next year, according to data from the U.S. Energy Information Administration (EIA).
Economic and Regulatory Outlook
Investors will be watching the Federal Reserve’s interest rate-cut outlook for 2025 after Fed bank policymakers projected a slower path due to stubbornly high inflation. Lower interest rates generally spur economic growth, which feeds energy demand.
Some analysts still believe supply could tighten next year depending on President-elect Donald Trump’s policies, including those on sanctions. He has called for an immediate ceasefire in the Russia-Ukraine war and could re-impose a maximum pressure policy toward Iran, which could have major implications for oil markets.
China’s Manufacturing Activity Expands
China’s manufacturing activity expanded for a third-straight month in December, though at a slower pace. This suggests that a blitz of fresh stimulus is helping to support the world’s second-largest economy.
U.S. Military Strikes Against Houthi Targets
The U.S. military carried out strikes against Houthi targets in Sanaa and coastal locations in Yemen on Monday and Tuesday. The Iran-backed militant group has been attacking commercial shipping in the Red Sea for more than a year, threatening global oil flows.
Crude Oil Stocks Fall
U.S. crude oil stocks fell last week while fuel inventories rose, market sources said. Crude stocks fell by 1.4 million barrels in the week ended Dec. 27, while gasoline inventories rose by 2.2 million barrels and distillate stocks climbed by 5.7 million barrels.
Conclusion
The decline in oil prices in 2024 is a result of several factors, including the post-pandemic demand recovery stalling, China’s economy struggling, and non-OPEC producers pumping more crude into the global market. The outlook for 2025 suggests that oil will likely trade around $70 a barrel due to weak Chinese demand and rising global supplies.
