Brent crude oil futures for March delivery settled at $74.64 per barrel on December 31, 2024, marking a 65 cent (0.88%) increase. This rise comes despite Brent crude experiencing a 3.12% decline throughout 2024, ending the year with a second consecutive annual loss. The recent uptick in price is attributed to a combination of factors, including expanding Chinese manufacturing activity and Nigeria’s plans to increase oil output in the coming year. However, the outlook for oil prices in 2025 remains cautious, with analysts predicting that weak demand from China and rising global supplies could keep prices constrained around $70 per barrel.
Key Insights:
- Positive Short-Term Trend: Brent crude has seen an upward trend in recent trading sessions, with the latest settlement marking the highest value since November 22, 2024. This suggests a possible shift in market sentiment, at least in the short term.
- Chinese Manufacturing Growth: Data indicating an expansion in Chinese manufacturing activity has provided support for oil prices, as China is a major consumer of crude oil.
- Global Supply Concerns: Nigeria’s plans to increase oil output could contribute to rising global supplies, potentially putting downward pressure on prices.
- Demand Outlook: The International Energy Agency (IEA) has cut its oil demand growth expectations for 2024 and 2025, citing a weaker demand outlook in China. This suggests that the demand side may not be strong enough to sustain significant price increases.
Investment Implications:
- Cautious Optimism: The recent price increase offers a glimmer of hope for oil investors, but caution is still warranted. The overall trend for Brent crude in 2024 has been downward, and the outlook for 2025 remains uncertain.
- Monitor Demand Signals: Investors should closely monitor demand signals from China, as this will be a key driver of oil prices in the coming months.
- Diversification: Given the volatility in the oil market, investors should maintain a diversified portfolio and not overexpose themselves to oil-related assets.
- Consider Hedging Strategies: For investors with significant exposure to oil, hedging strategies may be appropriate to mitigate potential downside risks.
