Oil prices end 2024 lower on expectations of market glut and slowing Chinese demand

Oil prices closed slightly higher on the last day of 2024, but ended the year lower, as traders weigh the impact of an oil market glut expected this year, slowing Chinese fuel demand and the possibility of tighter US sanctions on Iranian crude exports.

Brent, the benchmark for two thirds of the world’s oil, settled 0.88 per cent at $74.64 a barrel on Tuesday. West Texas Intermediate, the gauge that tracks US crude, ended the day 1.03 per cent higher at $71.72 a barrel.

For the year, Brent was down 3.1 per cent compared to its closing price of $77.04 per barrel in 2023, while WTI was mostly flat.

Brent prices experienced a volatile year in 2024, ranging from a low of about $69 a barrel to a high of $92 a barrel. After a strong start, prices weakened in the second half due to rising US interest rates and sluggish Chinese oil consumption.

Crude imports from China, the main engine of oil growth for nearly two decades, have shown signs of cooling amid a slowdown in its economy and the rapid adoption of electric vehicles.

Both S&P Global Commodity Insights and the International Energy Agency anticipate a peak in China's petroleum demand. While S&P is projecting a 2025 peak of 3.8 million barrels per day, the IEA is forecasting a 2024 peak of 3.66 million bpd.

The IEA expects petrochemicals to be the key driver of future oil demand growth, with China likely to increase liquefied petroleum gas and ethane imports to meet domestic needs.

"Chinese consumption is undergoing a major structural change. High single-digit annual demand growth is firmly in the rear-view mirror for the Asian giant and peak transportation fuels consumption is probably round the corner," said Vandana Hari, founder of Vanda Insights.

"There is no other country or region that could ever take the place of China in the way it drove global demand growth for the past two decades," she told The National.

Oil market glut

The IEA expects a crude surplus of 1 million bpd this year on rising supply from producers outside of the Opec+ alliance of producers.

The Paris-based agency has forecast that non-Opec+ countries, led by the US, Canada, Guyana and Argentina, will increase oil production by 1.5 million bpd in 2025.

This will hinder the ability of Opec+ to restore some oil production.

The group has extended its voluntary output cuts of 2.2 million bpd, which were originally scheduled to be gradually phased out starting in October 2024, until the end of March next year.

Opec+ also extended its oil production cuts of 2 million bpd and 1.65 million bpd by a year to the end of 2026.

"I think the alliance will remain a key influence in the market in 2025, though it will have its work cut out if it wants to remain a stabilising influence," Ms Hari said.

Trump effect

US president-elect Donald Trump's policies pose risks in both directions, with both bullish and bearish implications, analysts say.

On the bullish side, his "maximum pressure" approach towards countries like Iran, renewed sanctions on Venezuela, and reports indicating that Tehran might be placed under additional sanctions could result in large supply disruptions, Giovanni Staunovo, strategist at UBS, said in a research note in December.

"On the bearish side, tariffs could weigh on growth prospects in 2025. Countries could tackle such policies with more stimulus measures, but the impact would come with some delay," he added.

Mr Trump has proposed a 60 per cent tariff on goods from China and a blanket 20 per cent tariff on all imports into the US. In November, the incoming president said he would sign an executive order imposing a 25 per cent tariff on goods imported into the US from Mexico and Canada.

He has also threatened the EU with tariffs if the bloc does not increase its purchases of US oil and gas.

Mr Trump has promised to bring about a swift resolution to the wars being fought in the Middle East and Europe, which have contributed to the geopolitical risk premium in crude prices.

"If Donald Trump manages to de-escalate the Gaza and Ukraine wars, this volatility factor should evaporate in 2025, though there could be plenty of new ones," Ms Hari said.

"As the new Syrian war, the Georgian unrest and the South Korean political crisis in recent days prove, there is no dearth of geopolitical tensions simmering just under the surface around the world."