The oil market in 2024 stood as an island of stability, a surprising calm in a year of geopolitical storms and fluctuating demands. Brent crude prices, remarkably, barely moved, confined within a tight $74-90 range. Deloitte’s findings highlight this year as exceptionally steady, the most so in a quarter of a century. The oil and gas sector thrived in this predictable environment, showering investors with dividends and buybacks amounting to hundreds of billions, while oilfield services enjoyed their best spell in decades. This resilience occurred even as tensions simmered between Ukraine and Russia, and instability plagued the Middle East. China’s economic deceleration, the electric vehicle transition, and a robust US dollar all played their part in anchoring oil prices.

Oil market calm before storm?

As we enter 2025, the critical question is whether this tranquility can endure. The coming year looks to be a turning point, particularly with Donald Trump’s impending US presidency. His ‘drill baby drill’ mantra promises deregulation and increased oil output. However, the US capacity to significantly ramp up production is questionable. Standard Chartered reports a sharp deceleration in non-OPEC+ supply growth, plummeting from 2.46 mb/d in 2023 to a mere 0.79 mb/d in 2024, largely due to a US liquids growth slowdown. Projections suggest a further drop to 367 kb/d in 2025 and 151 kb/d in 2026. While some anticipate a US output surge, expert consensus leans towards OPEC maintaining production cuts throughout 2025.

China demand slows down

On the demand front, China’s oil consumption has surprisingly contracted for the first time in 25 years, now trailing India’s burgeoning appetite. India accounted for a substantial 25% of global oil consumption growth in 2024, while China’s consumption shrank by 0.3 mb/d in the third quarter, with further slowdowns expected. Weak industrial output and a growing preference for electric and hybrid vehicles are key factors. Sinopec’s recent statements hint at China’s crude imports peaking sooner than expected – possibly by 2025 rather than 2027 – signalling a bearish demand outlook. Despite this, agencies foresee a global oil consumption increase of 1.3 mb/d, primarily fuelled by India’s rise and potential US Federal Reserve interest rate cuts. Bank of America predicts Brent prices averaging around $65 if OPEC holds firm on production. Haynes Boone LLC’s survey indicates banks bracing for WTI prices under $60 by mid-2027, reflecting financial caution. Recent weeks have seen oil prices climb due to severe winter weather in the US and Europe, but analysts view this as seasonal, expecting prices to recede.

UK and China reset relations

In parallel developments, the UK and China have restarted economic and financial talks after a six-year pause. This dialogue restart, marked by UK Treasury chief Rachel Reeves’ visit to Beijing, indicates a potential reset in strained relations. The UK government aims for a pragmatic approach, seeking cooperation in areas like sustainable finance and clean energy, whilst also addressing national security and human rights concerns. This delicate balancing act is crucial as the UK navigates its relationship with its fourth-largest trading partner amidst geopolitical complexities.

Balancing act for global economy

As 2025 dawns, an impending oil surplus appears likely. This could benefit India by easing energy-related inflation, potentially prompting interest rate cuts. The broader picture reveals a global economy at a crossroads, with energy market stability potentially giving way to volatility, and diplomatic re-engagements occurring amidst persistent tensions.

Will oil stability last? The interplay of economic indicators and geopolitical factors suggests that the apparent calm in the oil market may be temporary. Expect continued vigilance and possible adjustments as the year unfolds.