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Oil prices rose on Tuesday following news of China’s continued manufacturing expansion in December. However, both Brent and WTI are poised to end lower for the second consecutive year due to demand concerns in key consuming nations.
- Brent Crude Futures: Increased by 0.8% to $74.56 per barrel.
- West Texas Intermediate (WTI): Rose by 0.8% to $71.57 per barrel.
- 2024 Yearly Performance: Brent declined 3.2%, while WTI was down 0.1%.
China’s Role in Oil Market Dynamics
China’s manufacturing activity expanded for the third straight month, albeit at a slower pace, signaling the positive impact of government stimulus. Officials announced a record issuance of 3 trillion yuan ($411 billion) in special treasury bonds for 2025, aiming to bolster economic growth further.
However, the broader demand outlook in China remains weak, forcing OPEC and the International Energy Agency (IEA) to cut their global oil demand projections for 2025.
OPEC and IEA Outlook
- OPEC+ Adjustments: The group has delayed plans to raise output until April 2025 amid falling prices.
- IEA Predictions: The IEA expects global oil supply to surpass demand in 2025, driven by increased production from the U.S. and other non-OPEC producers.
U.S. Crude Stockpiles and Short-Term Support
Despite a subdued demand outlook, oil prices found short-term support due to a larger-than-expected drawdown in U.S. crude inventories during the holiday season. Refiners ramped up activity, contributing to the drawdown.
Preliminary estimates suggest that U.S. stockpiles dropped by 3 million barrels last week, reflecting seasonal fuel demand.
Monetary Policy and Oil Demand
The Federal Reserve’s revised interest rate path, with only two rate cuts expected in 2025, has strengthened the U.S. dollar. This has weighed on oil prices as a stronger dollar makes oil purchases more expensive for international buyers, dampening demand.
Looking Ahead to 2025
Investor focus will shift to:
- Fed Rate Path: Lower interest rates could spur economic growth and, by extension, oil demand.
- U.S. Policy Changes: Policies under President-elect Donald Trump, including looser regulations and tax cuts, are expected to support growth but could add inflationary pressures.
While short-term factors like declining U.S. stockpiles may support oil prices, longer-term challenges like oversupply and muted demand growth are expected to weigh on the market as we transition into 2025.
