Analysis Energy
Promise of boost to Chinese economy supports oil price
After a dip, the oil price is climbing again. China will ease its monetary policy next year, which could boost demand. The extension of the OPEC production cut was not a surprise to anyone. In contrast to the sudden fall of Assad in Syria. This causes additional unrest in the Middle East.
The price of crude Brent oil dipped to $71.12 per barrel on Friday, December 6. Since then, the upward trend has resumed. At the time of writing (Wednesday afternoon, December 11), oil is at $72.85.
Saudi Aramco, the state oil company of Saudi Arabia, has reportedly lowered its price for oil delivery to China to the lowest level in four years, according to Reuters. This could mean two things: demand is very low and/or the oil company wants to maintain its market share (of 70% of the Chinese market).
Chinese demand could get a boost, as China announced on Monday that it will ease its monetary policy for the first time in fourteen years next year. This could finally mean good news for the country's economy. Analysts are cautiously optimistic, saying it sounds positive but the outcome is still uncertain. Meanwhile, China's oil demand, according to the country's largest energy producer China National Petroleum Corporation, is expected to peak next year rather than in 2030, as reported by Bloomberg. This is due to accelerated growth of electric cars and LNG trucks. For now, the oil price seems to mainly react to the promise of a boost for the Chinese economy.
Uncertainty around Syria
In Syria, after over 24 years, the rule of Bashar al-Assad has come to an end (who took over from his father who ruled for three decades). Neither Iran nor Russia was willing to support Assad militarily, although the latter offered him asylum. Syria's oil production is relatively small and subject to sanctions. Uncertainty about what will happen in the country and the region now supports oil prices.
OPEC countries continue to limit production
OPEC+ is taking measures to support the oil price. Last week (December 5), the decision was made to continue the production cuts for even longer, as expected. From April 2025, oil production will gradually increase. However, it is noted that this decision can be paused or reversed depending on market conditions. The production cut of Saudi Arabia, Russia, Iraq, the United Arab Emirates, Kuwait, Kazakhstan, Algeria, and Oman of 2.2 million barrels per day has been extended until March 2025. From then on, the cut will be phased out until the end of September 2026. The production cut of other OPEC+ countries of 1.65 million barrels per day will be maintained throughout 2026.
Global demand is still low, and the oil cartel is trying to support the price by creating scarcity. In the December monthly report published yesterday (December 11), OPEC revised down the growth of global oil demand for 2024 and 2025 for the fifth consecutive month. For 2024, it is revised down by 210,000 barrels per day to 1.6 million barrels per day (year-on-year), and for 2025, it is revised down by 90,000 barrels per day to 1.4 million barrels per day (year-on-year).
Support for oil price
The U.S. Energy Agency (EIA) predicts in a outlook published this week that oil production will increase by 1.6 million barrels per day in 2025, with nearly 90% of that growth coming from countries not affiliated with OPEC+. The agency expects the price of Brent oil to average around the same as this year next year, about $74 per barrel. Several analysts expect a smaller supply after the announced extension of the oil cartel's production cuts, providing a support level for the oil price of $70 per barrel.
