Crude oil market turbulent: Geopolitics and supply

Geopolitical and Economic Fundamentals Alternately Influence the Oil Market

In 2024, the international crude oil market exhibited a "V-shaped" volatility under the dual impacts of geopolitical tensions and economic supply-demand changes. Early in the year, oil prices surged due to Middle East tensions, but as global economic growth expectations weakened and demand cooled, prices gradually declined from mid-year.

According to data from Sinopec's Economic and Technical Research Institute, the average Brent crude oil price this year is $80 per barrel, down nearly 3% from 2023. Facing the dual pressures of weak demand and oversupply, multiple institutions forecast that oil prices may further decline in 2025, potentially fluctuating between $65 and $80 per barrel.

Slowdown in Demand Growth

This year's high-to-low oil price trend is closely related to the slowdown in demand growth. At the beginning of the year, geopolitical factors such as attacks on Russian refineries and the escalation of the Israel-Palestine conflict, coupled with OPEC+ production cuts and a rebound in economic data, pushed oil prices to a peak in April. However, from the second quarter, the sluggish global economic recovery, combined with the impact of new energy sources, significantly slowed the growth of oil demand.

The International Energy Agency (IEA) and the U.S. Energy Information Administration (EIA) predict that global oil demand will increase by less than 1 million barrels per day in 2024, only half of the 2023 increase. This trend reflects the ongoing impact of the global energy transition on traditional oil consumption. Nonetheless, China's fiscal and monetary stimulus policies and economic recovery expectations provide some support for oil demand, prompting the IEA to adjust its forecast for global oil demand growth in 2025 to 1.1 to 1.5 million barrels per day.

Increasing Supply Pressure

On the supply side, production increases from non-OPEC countries dominate. Brazil, the United States, Canada, and Norway are expected to increase production by 1.5 million barrels per day in 2025, sufficient to meet the new part of demand growth. Meanwhile, although OPEC+'s production cuts have temporarily supported oil prices, challenges in internal cooperation and the production increase pressure from non-OPEC countries are gradually eroding its market regulation capabilities.

The 38th OPEC and non-OPEC ministerial meeting held this December extended the 2.2 million barrels per day voluntary production cut plan until the first quarter of 2025 and decided to continue the total production cut of 3.65 million barrels per day until the end of 2026. However, whether these production cuts can effectively address the production increases from non-OPEC countries and the slowdown in market demand remains uncertain.

Industry insiders point out that conflicts within OPEC+ over production allocation benchmarks are intensifying. For example, the UAE has frequently expressed dissatisfaction with OPEC's production cut agreements, and internal discord due to overproduction issues among member countries such as Iraq, Russia, and Kazakhstan may also affect the efficiency of the organization's decision-making.

Impact of New Energy and Market Outlook

In the context of the energy transition, traditional oil consumption patterns are facing challenges. The rapid development of global new energy, along with the proliferation of electric vehicles and other alternative energy sources, is gradually changing the energy consumption structure. This trend not only suppresses the demand side but also presents new pressures on the supply side.

In the future, the international crude oil market will continue to be influenced by the development of new energy, geopolitical situations, and global economic fundamentals. Although OPEC+'s production cut policies will provide some support for the market in the short term, the production increases from non-OPEC countries may further squeeze its market share. In this supply-demand imbalance, the market may face greater uncertainty.

Conclusion: The Future Trend of Oil Prices Remains Uncertain

Looking to 2025, the global crude oil market will continue to seek a balance in the tug of war over supply and demand. Slow growth in demand and the pressure of increased supply mean that oil prices may remain at a low oscillation, while the rapid development of new energy will continue to alter the traditional energy market landscape. Whether OPEC+ can maintain its market influence will be the key variable in determining the future direction of the oil market.

The market carries risks, and investment should be cautious. This article does not constitute personal investment advice and has not taken into account individual users' specific investment goals, financial situations, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their particular circumstances. Investing based on this is at one's own responsibility.

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