Global Oil Demand Remains Strong Despite Rate Cut Expectations
The oil market is experiencing a surge in demand, driven by strong US crude exports and a decline in oil inventories. Despite the Federal Reserve’s decision to reduce the number of rate cuts expected in 2025, oil prices remain buoyant.
US Crude Exports Reach Highest Level Since July
According to the Energy Information Administration, US crude exports rose by 1.8 million barrels last week, reaching the highest level since July. This increase in exports indicates a significant uptick in global demand, which is supporting oil prices.
Distillate Stockpiles See Significant Drawdown
In addition to the rise in exports, the report also showed a 3.18 million-barrel drawdown in distillate stockpiles, marking the fourth consecutive weekly decline. This is a welcome relief for the industrial sector, which has been plagued by sluggish growth in 2024.
Kazakhstan to Comply with OPEC+ Quotas
Reports that Kazakhstan intends to comply with OPEC+ quotas next year have also helped to alleviate concerns about oversupply. The cartel member had previously signaled that it would adhere to its original plan of raising oil output, but has now reversed course.
Geopolitical Tensions Support Oil Prices
Crude prices have traded in a narrow band for the past two months, supported by geopolitical tensions in the Middle East and Europe, as well as the threat of further sanctions on supplies from Iran and Russia.
Chinese Demand and Non-OPEC+ Production Weigh on Prices
However, lackluster Chinese demand and expectations for robust production from non-OPEC+ nations such as the US are restraining prices. President-elect Donald Trump has promised to encourage domestic development, which could lead to increased production.
Oil Bulls Face Challenges in 2025
As the Federal Reserve’s outlook for 2025 boosts the dollar, making commodities priced in the currency less attractive, oil bulls face significant challenges. According to Jon Byrne, an analyst at Strategas Securities, “oil bulls are already trying to thread the needle here in 2025 with what needs to go right for higher prices.”
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