Crude oil market in 2024; prices capped despite geopolitical risks

We look back factors and events in the crude oil market in 2024 and discuss the market for 2025. We heard outlooks from seven experts including analysts at financial institutions and thinktanks, independent analysts.

For the crude oil market in 2024, several analysts pointed out that the Middle East geopolitical risks are the biggest topic. On the other hand, some analysts also said, "The upside of the market was generally limited."

Tomomichi Akuta, Senior Economist at Mitsubishi UFJ Research and Consulting, mentioned that the market was capped by an expected economic slowdown in the US and China in the first half of the year. Mr Akuta added that the US economy was far firmer than expectations and said, "Chinese economy was more sluggish than forecasts. Supply/demand of oil was slack and the market remained low."

Takayuki Nogami, Senior Economist of JOGMEC, mentioned a conflict between Ukraine and Russia and the unstable situation in the Middle East, adding that the market was not clearly on the rise despite these events and relatively stable. He pointed out that the upside was limited compared with the forecasts.

The market was disappointed by economic slowdown, slowdown of oil demand and economic stimulus packages by the Chinese government. In addition, some members of OPEC Plus did not extend a voluntary production cuts of about 2.20 mil barrel per day. OPEC Plus was gradually reducing the production cuts rather than expanding the scale of production cuts. Mr Nogami pointed out these events as unexpected factors.

The crude oil market lost direction in 2024. Tsuyoshi Ueno, Senior Economist at NLI Research Institute, found the geopolitical risks very fluid and unforeseeable. Mr Ueno said, "It was quite difficult to forecast the market in 2024. Since both risks for the upside and downside of the market surfaced at the same time, the market moved within an expected range as a result." Mr Ueno forecast WTI crude oil to be at just below $60/bbl to $90/bbl at the beginning of 2024. He pointed out that the WTI market dropped as demand from China was lower than expected and gained with growing tension in the Middle East situation including the armed conflict between Iran and Israel.

Tsutomu Kosuge, the president of Marketedge, said, "We did not see clear market trend throughout the year. Especially in the second half of the year, crude oil was sold due to supply/demand factors and bought for geopolitical risks repeatedly." He added, "The market in 2024 moved within the range in 2023. The range was narrowest since 2019." OPEC Plus strengthened production cuts but did not show the end of it. This gave an impression of difficulty managing supply/demand along with a structural change in supply/demand. He analyzed and said, "Major production disruption arising from geopolitical risks did not over eventually but risk assessment of the military confrontation between Israel and Iran was tough.

Yuki Takashima, Economist at Nomura Securities, found it unexpected that Iran and Israel directly attacked each other in April and this sharply raised crude oil prices, adding that the downslide along with oversupply was following expectations. On the other hand, OPEC Plus reduced the scale of its voluntary production cuts and crude oil prices slipped. Mr Takashima said, "The situation suggests again that it is difficult for OPEC Plus to continue production cuts."

Further, oversupply of oil on the back of concerns about Chinese economy lowered the market as expected.

Satoru Yoshida, commodity analyst with Rakuten Securities, mentioned that the market was moving only within the range seen in the past few years and experienced downward pressure with the upper side of the range and upward pressure with the lower side. Mr Yoshida said, "The market did not reach the $90's/bbl seen in 2023 but moved within the range between around $65/bbl and $95/bbl, which continued from the end of 2022. As the upward pressure, Mr Yoshida pointed out "An expected decrease in supply by major oil producing countries" such as production cuts by OPEC Plus and conflicts of oil producing countries. Moreover, Mr Yoshida also mentioned "A change in policy to reduce interest rates and expected cuts of interest rates in the US", which would promote funding and raise mood to recover economy.

Naohiro Niimura, co-chief of Market Risk Advisory indicated that the market would move depending on geopolitical matters but said, "Financial policy was decided unexpectedly as economic outlook was unstable. This affected the market more." Mr Niimura added that although La Nina formed late, an impact caused by El Nino, which raise the number of hurricanes, was prolonged and this was also unexpected.

Crude oil market in 2025; Trump and OPEC Plus to draw attention

For the crude oil market in 2025, seven experts including analysts at financial institutions and thinktanks, and independent analysts are paying attention to "Energy policy by President-elect Donald Trump" and "OPEC Plus policy".

Moreover, several analysists pointed out that the US shale oil situation would affect the market. Geopolitical risks have heightened in the Middle East and Ukraine. All of the experts expected that the market would be extremely volatile in 2025.
The Seven analysts forecast WTI crude oil futures to be in a range of $55-100/bbl and Brent crude oil futures in a range of $60-105/bbl.

Tsuyoshi Ueno, Senior Economist at NLI Research Institute, was paying attention to "When, what and how much Trump administration would implement his policy", "Whether conflicts between the US and Iran would intensify" and "Production reduction by OPEC Plus". Mr Ueno predicted that Trump administration would at first announce measures to raise crude oil production and increase tariff on Chinese goods, which would result in a decline in crude oil prices. However, owing to building of Strategic Petroleum Reserve (SPR) and a decrease in supply from Iran and Venezuela caused by heightened sanctions, the market might slightly recover in spring onward.

Tomomichi Akuta, Senior Economist at Mitsubishi UFJ Research and Consulting, anticipated that the market would be volatile to some extent as it remained difficult to foresee geopolitical risks in the Middle East and Ukraine and policy of Trump administration. Nevertheless, while Chinese economy would remain sluggish, development of shale oil production would be curbed in the US if crude oil prices are at $65/bbl or below. Thus, the downslide would be limited.

Mr Akuta added, "I am paying attention to movements of OPEC Plus", since Trump administration seems to move to raise fossil fuel production.

Naohiro Niimura, co-chief of Market Risk Advisory mentioned, "Economy would slowly recover and OPEC plus would raise production timely, capping the upside of the market." In addition, Mr Niimura emphasized that risks that Chinese economy might sharply slow down should not be ignored in 2025 as the US might impose high tariff on Chinese goods. Further, Mr Niimura said, "Chinese economy might also improve thanks to economic measures." In this situation, Mr Niimura forecast that the crude oil market would greatly fluctuate in 2025. After the inauguration of Donald Trump, the US might accelerate the support to Israel. Mr Niimura was concerned and said, "Conflicts that Iran is involved might escalate and crude oil supply might stop. As a result, prices would jump. We cannot ignore such risks."

Yuki Takashima, Economist at Nomura Securities, mentioned that the crude oil market would be pressured by oversupply but would rebound at around $60/bbl, considering production costs for shale oil in the US. However, OPEC Plus has room for production rise and demand for crude oil is slowing down due to weak Chinese economy. Therefore, Mr Takashima saw that the market would hit a ceiling at around $80/bbl even if the market came under upward pressure.

Meanwhile, regarding energy policy of Trump administration, Mr Takashima was paying attention to whether tax cuts and supports that allow oil companies to continue unprofitable production would be implemented. Mr Takashima said, "If such supports are implemented, crude oil prices might sharply decline."

Takayuki Nogami, Senior Economist of JOGMEC, forecast WTI and Brent crude prices to be at $70-90/bbl and at $75-95/bbl, respectively. Mr Nogami also mentioned that crude oil prices might fluctuate out of these ranges in 2025 at some points. Mr Nogami indicated three factors to raise the market.

1.Tramp administration would take hard-line measures on Iran and how market would respond to a potential decrease in Iranian crude oil supply.
2.Tramp administration would retreat supports for global environment. And a demand for oil is expected to rise.
3.Possibility that shale oil production would decrease in the US heighten.

On the other hand, Mr Nogami indicated three factors to lower the market.

1.Tramp administration would implement tariff policy and this would cause Chinese economy and demand for oil to slow down. Inflation would accelerate and a reduction in interest rates would stop in the US. As a result, economy and demand for oil would slow down
2.Prices would rise to the point where the WTI market would hover above $90/bbl and expectations for an increase in interest rates would heighten.
3.If WTI surpasses a $90/bbl mark, production of shale oil might rise.

Tsutomu Kosuge, the president of Marketedge, predicted that there were risks that crude oil prices might decline due to oversupply. Demand for crude oil would be covered only with production rises by non-OPEC members, following 2024 and it is difficult for OPEC Plus to largely adjust supply volumes throughout the year. But Mr Kosuge said, "The impact given by the Ukraine and Middle East situation and Trump administration is uncertain. Whether prices would move up or down would depend on abrupt supply disruptions, which is similar to 2024."

A sharp move of the dollar in the foreign exchange market is not taken into consideration. The downslide would be limited by geopolitical risks, additional demand to build SPR and supply/demand adjustment along with falling prices.

Mr Kosuge also had high interest in Tramp administration. On the supply side, the US would intend to reduce energy costs by increasing production within the country. But there is uncertainty about whether it would stimulate domestic production including shale oil.

But it might be difficult for Tramp administration to raise production at a large scale, which the first Tramp administration had implemented. Mr Kosuge insisted that we should pay attention to Tramp administration's policy, saying "The market situation might change depending on how enthusiastically the administration would implement the policy."

On the other hand, if sanctions are imposed on Iran and Venezuela similar to the first Trump administration, "Supply would be limited and crude oil prices might be supported. Especially, around 1.00mil bbl/day of supply from Iran might be lost. Supply risks arose from wars but might arise from Trump administration", said Mr Kosuge.

Satoru Yoshida, commodity analyst with Rakuten Securities, estimated that WTI prices would move within a range of $65-80/bbl similar to 2023 to 2024, adding that both upward and downward pressure might strengthen. Especially, Mr Yoshida was paying attention to whether Donald Tramp' s policy "Drill, baby, drill" could be realized.

Mr Yoshida is seeing a change in the number of drilling wells in the major areas of shale oil production in the data published by US Energy Information Administration (EIA). Especially in the Permian area, about 450 drilling wells have been operating every month since the end of 2022. This is probably because the crude oil market is moving within a certain range.

The Bakken area and the Eagle Ford area used to be known as the shale area since crude oil production volumes were almost at the same level as the Permian area. But the number of drilling wells sharply decreased along with a decline in the number of producers because of the reverse oil shock, when crude oil priced plunged from the second half of 2014 to the first half of 2016, and the COVID-19 pandemic in 2020. In order to realize the energy policy by Donald Trump, "Crude oil prices should surge to around $100/bbl similar to 2013-2014 and the number of drilling wells should jump in the Permian area. Further, if the Bakken area and the Eagle Ford area can enjoy more production, his policy might be realized", said Mr Yoshida. But he found it quite difficult to realize it.