A Bright Spot For Oil Demand?

Crude oil markets experienced limited activity over the past week as the holiday season reduced trading volumes. With markets closed for New Year’s Day, price movement was minimal, reflecting the lack of major catalysts during the shortened session. Light crude oil futures hovered around $70.55 before surging to $73.73 on Thursday, with most traders remaining on the sidelines until the release of key economic data from the U.S. and China later in the week?.

Despite the quiet trading environment, the market drew some support from positive economic signals out of China. Beijing’s announcement of a 3 trillion yuan ($411 billion) special treasury bond issuance for 2025 boosted sentiment, with expectations that stimulus measures will drive higher crude demand next year. Additionally, independent refiners in China received increased import quotas, suggesting stronger demand projections from one of the world’s largest oil consumers?.

2024 Market Review: A Year of Declines

As the year wrapped up, crude oil prices remained on track for a second consecutive annual loss. Brent crude was down approximately 3.4% year-to-date, while West Texas Intermediate (WTI) crude registered a modest 0.4% decline. Notably, Brent’s drop below $70 per barrel in September marked the lowest close since December 2021, emphasizing the bearish sentiment that prevailed for much of 2024?.

Several factors contributed to the downward pressure throughout the year. A lack of sustained geopolitical risk, combined with easing concerns over supply disruptions from Russia, tempered price spikes that had characterized previous years. Additionally, slower-than-expected post-pandemic economic growth dampened global oil demand, reinforcing the trend of declining prices. Brent’s 2024 peak of $91.17 marked the lowest annual high since 2021, reflecting this subdued environment?.

Supply-Side Developments: Rising Production

Oil production is set to expand in 2025, raising concerns of oversupply. OPEC+ deferred planned production increases until April 2025 in response to falling prices, but non-OPEC producers are expected to offset these cuts. Nigeria, for example, aims to raise output from 1.8 million barrels per day (bpd) to 3 million bpd next year?.

This rising supply poses a challenge to global oil markets, especially if demand fails to keep pace. The International Energy Agency (IEA) has already revised its demand growth forecasts lower for both 2024 and 2025, reflecting persistent economic headwinds. Even with OPEC+ extending output cuts, market expectations lean toward an oversupply scenario heading into the new year?.

Demand Outlook: Chinese Growth and U.S. Economic Signals

On the demand side, China remains a critical focus. Although manufacturing data from December indicated continued expansion, the growth rate was slower than anticipated. Still, Chinese policymakers have reaffirmed their commitment to boosting economic activity through proactive measures, a potential bright spot for oil demand in 2025.

The United States also remains a pivotal player in shaping demand. Economic indicators, particularly the ISM manufacturing survey, are being closely monitored for signals about industrial activity and energy consumption. Lower interest rates expected from the Federal Reserve may provide a tailwind to economic growth, supporting broader energy demand in the months ahead. However, uncertainty lingers over the potential impact of new trade policies and tariffs under the incoming administration?.

Geopolitical Factors and Global Energy Policy

Geopolitical factors continue to play a significant role in shaping the crude oil market. In Europe, Russia halted gas exports through Ukraine following the expiration of a transit agreement, although alternative supply routes mitigated immediate concerns?. Additionally, Hungary’s continued receipt of Russian gas via the TurkStream pipeline underscores the shifting dynamics in European energy reliance.

In the U.S., President-elect Trump’s proposed trade tariffs on Chinese goods could introduce volatility in global trade flows, with potential ripple effects on energy markets. Additionally, the administration’s energy policies—particularly regarding sanctions on Iran and domestic production incentives—are expected to influence market stability moving forward.

Weekly Light Crude Oil Futures

Trend Indicator Analysis

The main trend is down. It will change to up on a trade through $77.36. A trade through $62.94 will negate the reversal bottom and signal a resumption of the downtrend.

The minor trend turned up on Thursday when prices surged through the swing top at $71.06. The move also shifted momentum to the upside.

The intermediate-term range is $60.88 to $81.33. The market straddled its retracement zone at $68.69 to $71.10 for 11 straight weeks before finally breaking through this week. The move also confirmed the shift in momentum. The retracement zone is new support.

The long-term range is $87.11 to $60.88. The market is currently trading on the bearish side of its 50% level at $74.00. The price level is the next upside target and a potential trigger point for an acceleration to the upside.

Weekly Technical Forecast

The direction of the Weekly Light Crude Oil Futures market the week ending January 10 is likely to be determined by trader reaction to $71.10.

Bullish Scenario

A sustained move over $71.10 will signal the presence of strong counter-trend buyers. If this creates enough near-term momentum, we could see a test of the 50% level at $74.00 and a potential acceleration into the three major tops at $77.36, $79.61 and $81.33.

Bearish Scenario

A failure to sustain a move over 71.10 will indicate that strong sellers are still controlling the price action. It will also confirm that the market is still in “sell the rally” mode. This could drive prices back into the main support at $68.69.

Next Week’s Focus: Supply Developments and Economic Indicators

Looking ahead, the oil market’s focus will shift to supply-side developments and economic policy signals from key producers. Traders will closely monitor updates from OPEC+ regarding production plans, as well as announcements from non-OPEC producers on capacity expansion.

Additionally, attention will turn to potential shifts in U.S. energy policy under the incoming administration, with a focus on domestic production incentives and trade relations with China. While demand growth is anticipated, the scale and timing of recovery will remain key factors influencing market dynamics.

In the absence of major geopolitical disruptions, crude oil prices are expected to reflect evolving supply-demand conditions, with economic data and policy measures shaping the broader outlook.

Technically, momentum has shifted to the upside with the market facing its next headwind at $74.00. However, prices could surge, if buyers can overcome this level, with buyers shifting their focus to the $77.36 to $81.33 target zone.

On the downside, a failure at $71.10 will indicate the market is still in the strong hands of sellers, suggesting for formation of a rangebound-to-lower near-term trade.