SunSirs: China Crude Oil Prices Rise and Fall with Fluctuations and Narrowing in 2024, and the Oil Prices may be Suppressed

In 2024, under the influence of geopolitical, macro, and supply and demand fundamentals, international crude oil will emerge from a trend of rising and falling, gradually fluctuating and narrowing, and oil prices will gradually return to fundamentals. As of December 19, 2024, Brent crude oil has fallen by 4.87% for the whole year; WIT crude oil fell by 2.44%.

From a stage perspective, oil prices rose unilaterally in the first quarter, peaked and fell back in April and May, rebounded in June, fell unilaterally in the third quarter, and gradually began to fluctuate in the fourth quarter. Although there is a rising cycle driven by geopolitical conflicts throughout the year, the expectation of sluggish demand often pulls crude oil back to a lower level. Under the dominance of supply and demand, the pessimistic tone on the demand side always prevails.

Below is a phased overview of the annual trend:

From January to early April 2024, oil prices rose unilaterally and reached a full year high (Brent $86.91 per barrel). On the supply side, the Organization of the Petroleum Exporting Countries and its allies (OPEC+) continue to implement production reduction policies, and it is difficult for US crude oil production to continue to grow after reaching a high point. In terms of geopolitics, on the one hand, the ongoing conflict between Russia and Ukraine has a deepening trend, with Russian refineries being repeatedly attacked and supply shortages expected to escalate; On the other hand, the conflict between Palestine and Israel continues to escalate, and news of a ceasefire agreement continues to circulate, but it has yet to be reached, causing significant fluctuations in oil prices. At the macro level, the Federal Reserve of China and the United States began to release expectations of interest rate cuts in the year, and the triple positive factors pushed oil prices up in stages, reaching a high point for the whole year.

From mid April to May, oil prices fluctuated and fell back from high levels. From the perspective of supply and demand fundamentals, crude oil and refined oil inventories have shown high performance for several consecutive weeks, and institutions have generally made negative predictions about future oil price demand, dragging down the trend of oil prices. At the macro level, inflation in the United States remains high, the economy is bound to be overheated, employment data is impressive, expectations of interest rate cuts are gradually cooling down, and the rise of the US dollar is exerting pressure on oil prices. In terms of geopolitics, the termination of the Israeli Palestinian ceasefire agreement has caused fluctuations in oil prices in the short term, but has not changed the overall downward trend.

In June, oil prices rebounded strongly. On the supply side, OPEC+has extended the production reduction agreement, deepening the production reduction policy, especially with Saudi Arabia voluntarily reducing production, which has played a stabilizing role in oil prices. On a macro level, global PMI data shows that economic activity has rebounded, and economic indicators have once again supported the expectation of the Federal Reserve cutting interest rates within the year. Overlay, both supply and demand sides, market demand has recovered, the Middle East is experiencing geopolitical tensions, the conflict between Lebanon and Israel has erupted, and oil prices have risen sharply, but have not broken through previous highs.

In July and August, oil prices fell sharply. Geopolitically, the ceasefire negotiations between Palestine and Israel have once again been put on the table, with all parties urging them to increase their willingness to reach a resolution. The geopolitical risks have cooled down, and the expected supply of oil prices has had a certain impact on oil prices. Macroscopically, the impact on the capital market has suppressed the valuation of risky assets such as crude oil, leading to a sharp decline in the US stock market in early August and a global downturn in capital markets, which has had an impact on oil prices. On the supply side, the OPEC+conference has landed, and the organization plans to withdraw from the 2.2 million barrels per day production reduction policy starting from October. The expected increase in supply has increased the decline in oil prices.

From September to the end of the year, oil prices struggled to rise and returned to low levels of volatility. In early September, there was a brief rebound in oil prices, mainly due to favorable supply side factors, including unexpected events, interruptions in Libyan oil production, and disruptions in crude oil production and refinery operations caused by hurricanes in the Gulf of Mexico. Macroscopically, the Federal Reserve's first interest rate cut of the year in September also contributed to the upward trend of oil prices. In addition, geopolitical tensions, the escalation of the conflict between Israel and Hezbollah, and Iran's involvement have further increased the risk premium of crude oil. After October, as Israel did not take any substantial retaliatory actions and geopolitical risks cooled down, oil prices began to fall. More importantly, due to weak supply and demand fundamentals and a decline in market demand, the three major institutions have lowered their expectations for crude oil demand. In addition, with Trump's victory in the November US election, future policies are more inclined towards increasing crude oil production. Return of crude oil value. The OPEC+meeting in December maintained the policy of reducing production, and the expectation of withdrawal from production cuts cooled down. Although there were positive factors, bears still dominated the market. With a long short stalemate, oil prices fluctuated and narrowed until the end of the year against the backdrop of weak supply and demand markets.

Outlook for the Oil Market in 2025

For the oil price in 2025, SunSirs makes predictions from the following aspects.

The International Energy Agency predicts that by 2025, under the premise of OPEC+maintaining the current level of production policy, global oil supply will show a surplus, with an estimated supply exceeding demand by more than 1 million barrels.

From a supply side perspective, OPEC+has played a significant role in managing oil price expectations in the past two years, with a significant impact on oil prices. Especially in the context of low oil prices, the organization is able to make timely adjustments to production policies. Especially as the leader of OPEC+, Saudi Arabia's voluntary production cuts have also boosted its ability to control oil prices. In addition, with Trump's victory in the US presidential election, future policies will still favor traditional energy sources. Upstream investment in shale oil extraction and well completion will bring benefits, and there is hope for a new breakthrough in crude oil production, which will increase the risk of future oversupply of crude oil.

From the demand side perspective, according to the monthly reports of the three major agencies: the US Energy Information Administration (EIA), the International Energy Agency, and OPEC for November 2024, there is a slight divergence in demand for 2025. EIA and IEA are relatively pessimistic about demand, and generally believe that there will be a certain excess demand, while OPEC is optimistic. EIA believes that the cumulative inventory will be 310,000 barrels per day by 2025 (510,000 barrels per day will be depleted by 2024). SunSirs believes that the supply-demand balance in 2025 will transition from a tight equilibrium state to a balanced state, mainly based on the current production capacity and the premise of moderate growth in future US crude oil supply; In addition, it is also based on the current geopolitical foundation, without further intensifying geopolitical conflicts and taking into account the risk premium. Therefore, the upward range of oil prices is suppressed. In addition, major institutions are relatively pessimistic and conservative about oil prices in 2025, with Brent's average oil price generally predicted to be in the range of $73-76. The prediction of oil prices by SunSirs for 2025 basically conforms to this viewpoint.

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