Oil Prices Post 3% Annual Decline for Second Consecutive Year.
Global oil prices saw a 3% decline in 2024, marking the second consecutive annual drop as the post-pandemic demand recovery slowed, China’s economy faced headwinds, and increased crude output from the U.S. and other non-OPEC producers flooded the market.
On the year’s final trading day, Brent crude futures rose 65 cents, or 0.88%, to settle at $74.64 a barrel, while U.S. West Texas Intermediate (WTI) crude climbed 73 cents, or 1.03%, to close at $71.72 a barrel. Despite these late gains, Brent ended the year down from its 2023 close of $77.04, while WTI remained roughly unchanged.
Market Dynamics
Brent prices fell below $70 a barrel in September for the first time since late 2021, reflecting diminishing impacts from post-pandemic recovery and fading price shocks from Russia’s 2022 invasion of Ukraine. According to a Reuters poll, oil is expected to hover around $70 a barrel in 2025, with weak demand from China and rising global supplies countering OPEC+ efforts to stabilize the market.
Both the International Energy Agency (IEA) and OPEC revised their oil demand growth forecasts downward for 2024 and 2025, primarily due to China’s weaker-than-anticipated economic activity. The IEA predicts the oil market will face a surplus in 2025, despite OPEC+ delaying plans to increase output until April 2025.
Rising U.S. Production
U.S. oil output surged by 259,000 barrels per day (bpd) in October to a record 13.46 million bpd, as domestic demand hit its highest levels since the pandemic. The Energy Information Administration (EIA) projects U.S. production will reach 13.52 million bpd in 2025.
Geopolitical and Economic Outlook
Geopolitical factors remain critical to oil price trends. President-elect Donald Trump’s policy direction, including potential sanctions on Iran and efforts to broker a ceasefire in the Russia-Ukraine conflict, could significantly impact global markets. Tightened sanctions on Iranian oil exports could reduce supply, potentially offsetting current market surpluses.
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Additionally, the Federal Reserve’s outlook on interest rates for 2025 may influence energy demand. Lower rates are generally conducive to economic growth, spurring increased energy consumption.
Mixed Signals from China and Global Events
China’s manufacturing sector expanded for the third consecutive month in December, bolstered by recent stimulus measures, offering some optimism for demand in the world’s second-largest economy. Meanwhile, rising fuel inventories in the U.S. offset falling crude stockpiles, as gasoline and distillate stocks climbed by 2.2 million and 5.7 million barrels, respectively, according to the American Petroleum Institute.
Further buoying prices, U.S. military strikes targeting Houthi militants in Yemen, who have disrupted Red Sea shipping routes, added to supply concerns amid ongoing geopolitical tensions.
Looking Ahead
While oil prices ended 2024 on a slightly positive note, the market faces a complex mix of economic, regulatory, and geopolitical influences heading into 2025. Analysts remain divided on the trajectory of prices, with supply increases, potential policy shifts, and demand uncertainties continuing to shape the global energy landscape.
