Moneycontrol Pro Panorama | Oil on thin ice

2025 is poised to be pivotal for the oil market.

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The crude oil market has demonstrated remarkable stability throughout 2024, a year characterised by geopolitical tensions and shifting demand dynamics. Despite numerous global events, Brent crude prices fluctuated minimally, maintaining a range of $74-90 per barrel. According to a Deloitte report, this consistency marks 2024 as one of the most stable years in the past quarter century.

The oil and gas industry capitalised on this stability, distributing nearly $213 billion in dividends and $136 billion in share buybacks from January to mid-November, while oilfield services reported their best performance in 34 years.

This stability was despite escalating geopolitical tensions between Ukraine and Russia, alongside instability in the oil-rich Middle East. Furthermore, a slowdown in China's economy, a gradual shift towards electric vehicles, and a strengthening US dollar played significant roles in stabilising oil prices.

As we transition into 2025, the pressing question arises: Will this stability persist?

Looking ahead, 2025 is poised to be pivotal for the oil market, especially with President-elect Donald Trump set to take office. His campaign emphasised deregulation and increased oil production under the rallying cry of "drill baby drill".

However, questions loom regarding the US's capacity to boost oil output significantly. A report from Standard Chartered highlights a sharp decline in non-OPEC+ supply growth—from 2.46 million barrels per day (mb/d) in 2023 to just 0.79 mb/d in 2024—primarily due to a drastic reduction in US total liquids growth. Projections indicate that this trend may continue, with liquids growth anticipated to drop further to 367 kb/d in 2025 and 151 kb/d in 2026.

While many analysts speculate that US output will increase, experts predict that OPEC will maintain its production cuts throughout 2025.

On the demand side, China's oil consumption has notably declined for the first time in 25 years, falling behind India's growing demand. In 2024, India accounted for an impressive 25 percent of global oil consumption growth, as China's consumption decreased by 0.3 mb/d in the third quarter and is expected to continue slowing into the fourth quarter. Factors contributing to this decline include weak industrial production and an increased preference for electric and hybrid vehicles.

Sinopec's recent comments suggest that China's crude imports may peak earlier than anticipated—by 2025 rather than 2027—indicating a bearish outlook for future demand.

Despite this, various agencies project an overall increase in global oil consumption by 1.3 mb/d, largely driven by India's rising demand and potential interest rate cuts by the Federal Reserve.

Bank of America forecasts that Brent prices will average around $65 per barrel if OPEC production remains stable. Meanwhile, a survey conducted by Haynes Boone LLC indicates that banks are preparing for WTI prices to dip below $60 per barrel by mid-2027, reflecting cautious sentiment among financial institutions.

However, oil prices have steadily increased over the past three weeks, driven by severe winter conditions in the US and Europe. Many analysts believe this rise is seasonal and anticipate that oil prices will eventually decline again.

As we stand at the beginning of 2025, signs of an impending surplus loom over the oil market. This situation could benefit India by alleviating inflationary pressures related to energy prices, thereby increasing the likelihood of interest rate cuts by its central bank.

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