Oil Prices Edge Up as Holiday Trading Ends with a Flat Year
As the calendar year comes to a close, oil prices have experienced a mixed performance in 2024. Despite closing out the year with a relatively flat result, crude has shown signs of stabilizing, particularly in thin holiday trading. West Texas Intermediate (WTI) rose by 1% to settle at $71.72 per barrel on Tuesday, marking a gain of 7 cents for the year.
Global Surplus Looms Large
The oil market is bracing itself for a potential global surplus next year. While some analysts have forecasted that crude prices will continue to weaken over the next two years due to oversupply concerns in 2025, others remain optimistic about the prospects of oil prices increasing. The ongoing geopolitical turmoil and resistance from prospects for a global oversupply in 2025 have contributed to crude being stuck in a narrow trading range since mid-October.
China's Economic Recovery Boosts Oil Demand
In a significant development that could support oil demand, factory activity in China has expanded for the third consecutive month. This is a welcome sign of nascent economic recovery, particularly given China's status as the world's largest oil importer. Furthermore, Chinese President Xi Jinping announced that the nation's gross domestic product (GDP) is expected to expand around 5% for the full year of 2024, meeting official targets.
Bullish Bets on WTI Reach Four-Month High
Investors have been positioning themselves for potential gains in the new year, with bullish bets on WTI reaching a four-month high in the penultimate week of 2024. This suggests that despite the overall bearish sentiment surrounding oil prices, there are still investors who believe in the potential for crude to recover in the coming months.
Geopolitical Risks Loom Large
On the other hand, geopolitical risks continue to loom large over the oil market. A potential flare-up in hostilities in the Middle East or Ukraine could provide short-term support for oil prices. Additionally, former US President Trump's pick for national security adviser has vowed to restore the "maximum pressure" campaign on Iran that squeezed the nation's crude exports during Trump's first term.
Optimism Amidst Bearish Sentiment
While some analysts have expressed concerns about the prospects of oil prices increasing due to oversupply concerns in 2025, others remain optimistic. John Driscoll, director and founder of Singapore-based consultant JTD Energy Services Pte., stated, "I'm not fully buying into this overwhelming bearishness... We may yet see some discipline on the upstream side from the oil producers, and I would not rule out the possibilities of black swans like geopolitical events or extreme weather."
Conclusion
As the year comes to a close, oil prices have experienced a mixed performance in 2024. While the market is bracing itself for a potential global surplus next year, there are still signs of stabilizing crude prices. The ongoing economic recovery in China and bullish bets on WTI reaching a four-month high suggest that investors remain hopeful about the prospects of oil prices increasing in the coming months. However, geopolitical risks continue to loom large over the market, and only time will tell if these concerns come to fruition in 2025.