Global oil markets are bracing for their most significant yearly price collapse since the pandemic year of 2020. Driven by mounting fears of a punishing supply surplus, the bearish sentiment is expected to dominate trading well into the new year.
A Year of Steep Declines and Mounting Glut
The US benchmark, West Texas Intermediate (WTI), was trading below $58 per barrel, poised for its fifth consecutive monthly loss. For the year, WTI has plummeted by almost 20%. Meanwhile, the global benchmark, Brent crude for March delivery, settled above $61 a barrel. The dramatic slump throughout the year stems from swelling output from the OPEC+ alliance and a concurrent slowdown in global demand growth.
Major forecasting bodies are sounding the alarm for 2025. The International Energy Agency (IEA) and others predict a substantial oversupply. Even OPEC's own secretariat, typically more optimistic, projects a modest surplus in the coming period, confirming the challenging market fundamentals.
Key Market Drivers: OPEC, Inventories, and Geopolitics
Traders are currently focused on several critical developments. First is the upcoming OPEC meeting scheduled for January 4, which will be held via video conference. According to three delegates, the producer group is expected to maintain its current plan to pause further supply increases, responding to the growing evidence of a surplus.
Secondly, a bearish report from the American Petroleum Institute (API) has added pressure. The API reported that US crude inventories rose by 1.7 million barrels last week. If confirmed by official government data, this would mark the largest stockpile build since mid-November. The report also noted increased holdings of gasoline and distillates.
Geopolitical Tensions Add Uncertainty
Beyond supply and demand data, geopolitical risks are simmering. In a significant development, the United Arab Emirates (UAE) announced it would withdraw its forces from Yemen. This move follows heightened tensions with its Gulf ally, Saudi Arabia, over military strategy in the conflict-ridden nation. Both Saudi Arabia and the UAE are crucial, influential members of OPEC.
Elsewhere, the market is monitoring a partial US blockade on crude shipments from Venezuela. Furthermore, former US President Donald Trump's revelation of a covert strike on a suspected drug-trafficking facility raises new questions about the extent of Washington's willingness to pressure the regime of Nicolas Maduro, impacting regional oil flows.
As the year closes, the oil market finds itself at a crossroads, grappling with the tangible reality of excess supply and uncertain demand, all while navigating a complex web of geopolitical strife that could disrupt the fragile balance at any moment.
