Yearender: Crude oil prices driven by geopolitical tensions, demand from China

Oil prices in the year were driven majorly by geopolitical tensions in the Middle-East, global demand especially from the world’s largest crude oil importer China and supply from OPEC+.

From the highs of $91 per barrel to the two-year low of $69 a barrel, crude prices witnessed extreme volatility in 2024 due to geopolitical tensions in the Middle East, weak global demand, especially from China, and supply curbs from the Organisation of Petroleum Exporting Countries and allies (OPEC+).

OPEC+ supply,  Middle-East crisis 

The year began with relatively higher crude  prices of about $80 per barrel due to concerns around tight supply from OPEC+, and they soon escalated further due to tensions in the Middle-East and OPEC’s decision in its April meeting to continue its supply cuts.

OPEC+ has put in place a total production cut of around 6 million barrels per day (bpd), accounting for almost 6 percent of world’s total production. Of this, a cut of 3.66 million bpd is to be implemented till the end of 2024, while the voluntary cuts of 2.2 million bpd expired in June but have been extended till April 2025.

The benchmark Brent crude climbed the highs of $91.17/bbl on April 5—the highest in five months and also the 2024 peak.

After Iran attacked Israel on April 13, market participants such as the brokerage firm JP Morgan forecast that crude prices could reach $100/bbl by September 2024 as the crisis in the Middle-East worsened.

Waning global demand 

Contrary to market anticipation, crude prices plummeted in May due to receding tensions in the Middle-East and lower-than-expected demand from China—the biggest oil importer and second-largest consumer in the world.

While prices eased due to the limited impact of the war on oil supply from the Middle-East, freight rates, however, shot up as shipping agencies had to take a longer route via the Cape of Good Hope instead of the Red Sea, due to attacks by the Houthis.

Declining global demand and bearish sentiment around oversupply led to a steady decline in prices, with Brent falling to $68.83/bbl on September 10—the lowest in two years.

Higher oil production in the US along with the  possibility of oversupply in the market also drove down prices, with crude hovering between $72- $75 per barrel in recent months.

2025 outlook

Oil prices are expected to remain muted in the coming year amid weak demand and rising supply, and also subject to geopolitical tensions in the Middle-East and the Russia-Ukraine war.

The International Energy Agency (IEA) said on December 12 that the global oil market would witness a large surplus in 2024, despite the decision by OPEC+ to delay the production increase to April. This is because non-OPEC+ producers, particularly the US, Brazil, and Canada, are expected to significantly increase their oil production, it added.

Fitch Ratings has said that prices would average around $70 per barrel in 2025, with oil demand growth in the next year to be likely in line with the tepid increase seen in 2024.