The price of Brent oil closed 2024 at $74 per barrel. These relatively low levels and a very strong supply suggested that the first part of 2025 could be the beginning of a new bearish year for crude oil (it would be the third in a row). However, from the first day of trading, oil began to rise in price without apparent explanation. Little by little, some analysts began to reveal that demand was rising more intensely than expected due to the arrival of cold waves in the northern hemisphere (the largest consumer of crude oil). Starting on January 10, the rise gained traction in the face of new sanctions on Russian oil, which now directly attack the ‘shadow fleet’ and large producers in Russia. Well, the International Energy Agency has confirmed all of the above with concrete data: demand is rebounding strongly and the cold threatens crude oil production in North America (USA and Canada). Which, together with the new sanctions against Russia, is driving up the price of crude oil, which already exceeds $80 per barrel. It cannot yet be called a ‘perfect storm’, but this could be a major scare for crude oil consumers. Especially because reserve levels (inventories) are at very low levels.
Benchmark crude oil prices have soared in early January due to intensifying US sanctions on Iran and Russia, along with cold temperatures affecting large parts of the northern hemisphere. Brent futures have reached a four-month high after exceeding $81 per barrel in mid-January, an increase of $8 per barrel compared to the previous month.
“The cold has caused global oil demand to suddenly regain momentum after several quarters of modest results, recording solid growth of 1.5 million barrels per day (mb/d) in the last three months. This was the increase strongest since the fourth quarter of 2023, and 260,000 barrels per day (kb/d) above our previous forecast A combination of lower fuel prices, colder weather in key regions of the northern hemisphere and a. increasing petrochemical activity in the United States supported this increase in demand,” the IEA monthly report states.
Annual demand growth for 2024 has been revised to 940 kb/d. Demand is expected to accelerate to 1.05 mb/d this year, driven by a gradual improvement in the economic outlook for developed economies. In addition, lower oil prices will continue to encourage consumption, consolidating a more sustained recovery in global energy markets.
Heating usage increases
After a relatively mild start to the winter heating season, the weather turned noticeably colder in December in Canada, the northern and central regions of the United States, much of Europe, Russia, China and Japan. Average heating days were significantly higher than a year ago and slightly above the average for the last five yearswhich boosted the demand for oil.
Oil demand in OECD countries for the fourth quarter of 2024 increased by 250 kb/d, supporting a 90 kb/d upward adjustment to the IEA’s 2024 global growth estimate. However, demand trends in non-OECD economies were mixed. While China showed modest year-on-year growth In November, the latest data for Saudi Arabia, Brazil and India were below expectations. Global oil demand growth is estimated to be 940 kb/d in 2024 and 1.05 mb/d in 2025, bringing global demand to 104 mb/d.
Supply risk
“Prices were also driven by fears of multiple supply risks. In the short term, weather-related disruptions in North America could have a significant impact, with Cushing crude oil inventories at decade lows. Last winter, oil production in the United States and Canada fell by more than 1.8 million barrels a day between December and January due to an Arctic cold snap. This year, a smaller seasonal decline is expected, as the prolific Permian Basin has so far avoided major climate impacts,” the IEA notes in its report.
On the other hand, the new and broader US sanctions against Russia, announced on January 10, could affect oil supply flows. Washington has targeted two major oil producers (Gazprom Neft and Surgutneftegaz), more than 160 ships carrying oil for Russia, Iran and Venezuelaas well as marine insurance providers, which further complicates oil commercial logistics for these countries. However, exports on non-shadow fleet vessels remain viable for Russian oil purchased below price caps.
At the same time, there is growing speculation that the new US administration will take a tougher stance on Iran’s oil exports, compounding the impact of the US Treasury Department’s sanctions on Tehran. On December 19, the United States expanded sanctions on ships carrying Iranian crude oil. These new measures now cover ships that carried an average of more than 500 kb/d of Iranian crude in 2024almost a third of the country’s crude oil exports. Although it is too early to fully quantify the potential impact of these new measures, some traders have already begun to withdraw from trading Iranian and Russian oil.
“If supply reductions due to cold weather, sanctions or other factors become significant, oil reserves could be rapidly depleted to meet short-term operational requirements,” the IEA report notes..
However, on the positive side, non-OPEC+ producers are expected to add another 1.5 mb/d of supply in 2025, the same figure as in 2024, led by United States, Brazil, Guyana, Canada and Argentina. For their part, OPEC+ members have been considering reversing additional voluntary production cuts and could increase their output if necessary. These additions should cover both potential supply disruptions and expected growth in demand.
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