Oil prices fell on Tuesday as concerns about escalating geopolitical tensions in several parts of the world eased. At the same time, the market may witness an increase in Chinese demand for oil, as the government adopts a loose monetary policy for the first time in years, which opens new horizons for the recovery of global demand. In addition, investors are awaiting the US Federal Reserve’s monetary policy meeting to be held next week, as low interest rates could boost demand for oil in the US economy.
At the time of writing, the price of West Texas Intermediate crude recorded $68.38 per barrel.
reflecting a decrease of 0.4% compared to the previous close. However, there are expectations that oil prices may receive a positive boost if the Federal Reserve decides to cut interest rates by 25 basis points during its upcoming meeting on December 17 and 18.
This potential cut could boost economic activity in the world’s largest economy, which would positively affect demand for oil.
However, traders in the markets are awaiting the results of inflation data to be released this week.
which may affect the Fed’s decision on interest rates. Investors are increasingly turning their attention to next week’s Federal Reserve meeting.
with expectations indicating an 86.1% chance of a 25-basis point rate cut.
Since the start of the year, the US central bank has cut interest rates by 75 basis points, following a surprise 50 basis point cut in September and an additional 25 basis point cut last month.
This move towards lower interest rates is expected to increase liquidity in the markets.
which reduces borrowing costs and thus supports demand for oil.
which enhances the positivity towards oil prices in global markets.
Potential rise in oil demand in China and the effectiveness of OPEC+ cuts
Oil demand in China could see a significant increase
Oil prices were relatively stable on Tuesday, after China announced plans to implement a “moderately easy” monetary policy, a move that has been waited for more than a decade. China is the world’s largest oil importer, and its decision to ease monetary policy is an important sign of strengthening domestic economic activity.
which will lead to increased demand for oil.
In this context, expert Ali said: “China’s commitment to intensifying economic stimulus reinforces expectations of higher demand for oil from the world’s largest crude importer.” Recent data also showed that China’s crude oil imports increased significantly in November, compared to the same period last year, reflecting the first growth in imports in seven months.
OPEC+ cuts support oil prices
In an important move to support oil prices, OPEC and its allies (OPEC+) announced last week the extension of voluntary production cuts of 2.2 million barrels per day until the end of March. This move reflects the keenness to avoid the negative effects of increased production on the market.
as OPEC+ had postponed the planned increase in oil production from January 2024. OPEC+ also extended its commitment to total cuts of 3.65 million barrels per day until 2026.
According to David Morrison, senior market analyst at Trade Nation, “This policy helps to put a floor under crude prices, and continues to support the market under current conditions.” Market pressures and their impact on prices
Despite these efforts, oil prices are still under pressure due to the continued increase in supply and weak demand. The slowdown in the Chinese economy after the property crisis is a major factor in these pressures.
along with the decline in demand in most Asian markets this year.
Bank of America Oil Price Forecast 2025 and Saudi Shipping Developments
Bank of America Oil Price Forecast 2025
BOA analysts expect Brent crude to hover around $80 per barrel in 2025, in line with the National Bank of Kazakhstan’s previous forecast of $82.5.
However, Francisco Blanch, head of global commodities and derivatives research at Bank of America, announced a major revision to the forecast, indicating that oversupply and lower demand, as a result of the global shift towards clean energy sources and sustainable transportation, could push oil prices to $65 per barrel.
Saudi Arabia cuts official oil shipping prices
In another context, Barbara Lambrecht, a commodities analyst at Commerzbank, revealed that Saudi Arabia has cut its official oil selling prices for its customers in Asia to their lowest levels in four years next January.
The premium for Arab Light crude to the Oman/Dubai benchmark will be capped at 90 US cents per barrel.
down from $1.70 in December 2023 and the lowest since January 2021.
This significant price drop is due to weak demand in Asia.
which accounts for around 80% of Saudi oil exports.
as well as lower prices for customers in Europe due to the weak economy. In contrast, prices for customers in the United States were unchanged, as demand there remains relatively strong.
Weak demand in Asia is expected to be the main reason behind OPEC+ delaying its planned January production increase until April 2024.
reinforcing the idea that Saudi Arabia’s price cut was a foregone conclusion. If demand does not recover, OPEC+’s production hike delay could be its last.
