As the current trading year nears its end, crude oil markets are heading to 2025 in a largely bearish mood on familiar concerns of oversupply, lackluster demand from China and a stronger dollar.
On Friday, the market needle failed to move by much yet again. Global proxy benchmark Brent ended up 0.08% or $0.06 at $72.94 per barrel, while the West Texas Intermediate ended at $69.46, up 0.12% or $0.08.
Both futures contracts ended down nearly 3% on the previous week, and have remained range-bound around $70 mark since producers’ group OPEC+ decided on December 5 to delay its planned increase in crude production.
The move stemmed a decline that had threatened to drag Brent crude below $70 at one point. However, wider market fundamentals have not materially altered and have somewhat worsened.
Unimpressive oil demand, especially from China, as noted by various global data aggregators, was already a concern. China appears to be importing 300,000 bpd less as the end of Q4 2024 approaches, compared to Q4 2023.
Near-term demand concerns were amplified further by Sinopec on Thursday following the state-owned refiner’s market assessment that China’s crude imports could peak as soon as 2025. It also noted that the country’s oil consumption may well peak by 2027, with a further weakening in demand for diesel and gasoline.
Yet, non-OPEC+ production is expected to rise in 2025. The International Energy Agency expects non-OPEC+ producers to increase their output by about 1.5 million barrels per day in 2025, driven by the U.S, Canada, Guyana, Brazil and Argentina.
Stronger Dollar, Weaker Oil Prices
Forecasts for non-OPEC+ production levels in 2025 by investment banks appear to be in a similar range, if not higher, underpinned by U.S. output projections. The country is producing well over 13 million bpd, and is expected to maintain output in 2025.
Also adding to supply and demand bearishness is a stronger dollar. Latest comments by the Federal Reserve have done little to change this despite a widely anticipated interest rate cut.
On Wednesday, the U.S. central bank reduced its benchmark interest rate by 0.25%, bringing the target federal funds rate down to a range of 4.25%-4.50%. While that is a full percentage point of easing since the Fed began cutting rates in September, its outlook for U.S. monetary policy in 2025 took the financial and commodity markets by surprise.
Members of the central bank’s Federal Reserve Open Markets Committee reduced their collective expectations for rate cuts to half of what they anticipated back in September. Their expectations are now to cut interest rates by a mere 0.50% for next year. That implies two 0.25% cuts in 2025.
Both oil futures as well as major U.S. stock indices fell on the news on Wednesday, as the dollar rose to near two-year highs. While it subsequently retreated, the currency still logged its third consecutive week of gains against a basket of global currencies.
Interest rate cuts tend to boost oil demand while a weaker dollar makes oil purchases relatively cheaper for non-U.S. importers, with the greenback being preferred currency of the global commodity market. An absence of both is currently adding further bearish baggage which is proving hard for the world’s oil markets to shed.