Oil prices experienced a decline on Friday as concerns mounted over demand growth prospects for 2025, particularly regarding China, the world’s largest crude importer. Global oil benchmarks are heading towards a weekly decline of approximately 3%.
By 0730 GMT, Brent crude futures decreased by 33 pence, or 0.45%, reaching £72.55 per barrel, while U.S. West Texas Intermediate crude futures dropped by 32 pence, or 0.46%, to £69.06 per barrel.
Chinese state-owned refiner Sinopec released its annual energy outlook on Thursday, projecting that China’s crude imports could reach their peak as early as 2025, with overall oil consumption expected to peak by 2027. These forecasts are attributed to anticipated weakening in diesel and petrol demand.
LSEG senior research specialist Emril Jamil noted that benchmark crude prices are experiencing an extended consolidation phase as the year draws to a close, weighed down by uncertainties surrounding oil demand growth. Jamil emphasised that OPEC+ would need to maintain strict supply discipline to boost prices and alleviate market concerns over repeatedly revised demand growth forecasts.
The Organization of Petroleum Exporting Countries and its allies (OPEC+) recently reduced its global oil demand growth forecast for 2024 for the fifth consecutive month, reflecting persistent market uncertainties.
Adding to the downward pressure on oil prices, the dollar reached a two-year high following the Federal Reserve’s indication of a cautious approach to interest rate cuts in 2025. The strengthening dollar makes oil more expensive for holders of other currencies, while slower rate cuts could potentially restrict economic growth and reduce oil demand.
JPMorgan’s market analysis suggests a shift from balance in 2024 to a surplus of 1.2 million barrels per day in 2025. The bank projects non-OPEC+ supply to increase by 1.8 million barrels per day in 2025, assuming OPEC output remains at current levels.
In a development that could affect supply, G7 countries are considering strengthening the price cap on Russian oil, potentially implementing an outright ban or lowering the price threshold, according to Bloomberg’s Thursday report. Russia has managed to circumvent the £47 per barrel cap imposed in 2022 through its “shadow fleet” of vessels, which have recently become targets of additional sanctions from the EU and Britain.
The combination of Chinese demand concerns, currency pressures, and potential policy changes in the Russian oil trade continues to create uncertainty in global oil markets as they approach the end of the year.