Steady Oil Markets: China, EVs, and OPEC+ Dynamics to Shape 2025 Outlook

Oil prices in 2024 showed remarkable stability despite trader pessimism over China’s demand and concerns over supply disruptions. Brent crude and WTI are closing near their starting-year levels. While China's demand growth may peak soon, India and Southeast Asia emerge as key growth markets.

Key Highlights:

  • Price Stability: Brent crude ends 2024 near $74 (down from $77), while WTI finishes slightly below $70.
  • China's Demand Outlook: Sinopec and CNPC predict China’s oil demand growth will peak between 2025-2027, capped by EV adoption.
  • India's Growing Role: India's oil demand growth surpasses China's, becoming a primary driver for global oil markets.
  • OPEC+ Strategy: Spare capacity and output cuts prevent price blowouts, with non-OPEC majors tempering supply growth expectations.

2024 in Review: A Stable Year for Oil Prices

  • This year in oil has been marked by chronic trader pessimism about Chinese demand and an equally chronic downplaying of supply disruption risks. This has made for a rather stable year in prices-and the stability could continue in 2025, on a few conditions.
  • Brent crude and West Texas Intermediate appear set to end the year at nearly the same levels that they started. WTI started 2024 at a little over $70 per barrel and is about to end a little below that. Brent crude looks like it will post a little more noticeable loss, starting the year at $77 per barrel and ending at a bit over $74 at the time of writing.

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Demand and Supply Insights: China's Peak Demand Nearing

  • China's very own state oil giants are saying it. CNPC said earlier this month that it expected demand growth to peak in 2025, moving the peak year from 2030, which was its prediction in 2023. 
  • The company cited electric vehicle adoption and LNG truck growth as reasons for its predictions, even though the record share of EVs in total car sales this year has failed to reverse China's oil demand growth.
  • Sinopec was next, publishing a report a week ago saying that oil demand growth in China was about to reach its peak in three years in 2027. The peak will occur at a daily demand level of some 16 million barrels or a total of 800 million metric tons, the Chinese state oil major said. 
  • A year ago, Sinopec saw Chinese oil demand peaking at around 800 million metric tons sometime between 2026 and 2030. China's oil demand this year is seen reaching 750 million metric tonnes, according to Sinopec.
  • It focus on China and pessimism about its demand has kept a lid on prices this year and is likely to keep that lid in place in 2025 as well-unless all the stimulus that the government in Beijing is throwing at the economy doesn't spur greater demand for the key commodity. 
  • In macroeconomic data, the focus will remain on China but also on India, which is shaping up as the next leading demand driver globally. Indeed, S&P Global Commodity Insights recently forecast that India's oil demand growth rate was set to exceed China's this year.

Global Market Trends: India Emerging as a Key Driver

  • Even weaker growth markets such as the European Union, continue to see growth in oil demand, as suggested by import figures. The latest available, for the second quarter of the year, showed a decline in natural gas imports but a pickup in what the EU categorizes as "petroleum oils". The EU is not the oil market traders look to for insight into demand trends, but this may be an oversight.
  • On the supply side, the focus, of course, remains on OPEC+, even as forecasters keep repeating how they expect great production growth things from non-OPEC majors such as the United States, Guyana, Canada, and Brazil. These forecasts have started to moderate with regard to the U.S., however, as the industry gives repeated signs that there will be no drilling at will just because there is a pro-oil president in the White House.
  • The situation with OPEC+ is quite similar. Forecasters have been making traders nervous and bearish for months, reminding them of all that spare capacity that OPEC could bring back online when it decides to roll back its output cuts. 
  • What they've consistently forgotten to mention is that OPEC and its OPEC+ partners made it clear from the start of the cuts that output would only be brought back online when prices rose high enough. This basically means that several price routs this year were entirely the result of unrealistic expectations, with zero relation to actual oil fundamentals.

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Expert Opinion: What Lies Ahead for Oil in 2025?

  • In the current context, fundamentals appear to be largely in balance. Many expect a supply glut next year, but that's based on assumptions about EV adoption that have consistently tended to disappoint. 
  • Trump sanctions on Iran could tighten supply from the Middle East further and lend some upward momentum for prices, but chances are that the idea of that big spare capacity cushion of 5 million bpd or more is going to play the role of a market blowout preventer once again.
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