On December 25th, the price of West Texas Intermediate (WTI) crude oil settled at $70.17 per barrel as trading paused for the Christmas holidayThis figure represents a key point in a year where overall oil prices have demonstrated a tendency to oscillate downwardThis conclusion indicates the steady state of the oil market as it entered the holiday period.

Reflecting on the year 2024, the initial quarter could be characterized as one of triumph for oil prices, which were on a clear upward trajectory to reach annual peaksThis surge primarily stemmed from a combination of production cuts imposed by OPEC+ and geopolitical factors providing dual supportSince the beginning of the year, OPEC+ has adopted a steadfast approach in implementing production cuts, effectively reducing supply in the market and creating a solid foundation for rising pricesJust as a strong pillar supports a building, these cuts have helped stabilize and elevate crude pricesIn September, eight OPEC and non-OPEC oil-producing countries even decided to extend the voluntary production cut agreement, initially set to expire at the end of the month, to the end of NovemberThis decision served as a reassurance to the market, stabilizing supply expectations and adding fuel to the already rising oil prices.

However, this favorable outlook did not last longBetween July and September, oil prices faced a significant setback, reminiscent of a 'Waterloo' moment, experiencing considerable declinesOn one hand, geopolitical tensions began to ease, eliminating the support previously propping up oil prices, much like a brake being applied to their ascent

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Simultaneously, pressures from the capital markets also contributed to a dampening of oil and other risk asset valuationsCompounding these struggles, OPEC+ announced a gradual rollback of some of its production cuts starting in October, which released expectations of increased supplyThus, fears regarding future oil supply escalated, contributing to further price drops.

As the months transitioned from September towards the year's end, oil prices seemed to lose their momentum, facing dwindling highs and returning to low-level oscillationsAlthough a brief rebound was witnessed in early September due to positive supply factors and a Federal Reserve interest rate cut, this glimmer of hope quickly proved ephemeralSubsequently, with Israel refraining from substantial retaliatory actions, the geopolitical risks that had supported oil prices further weakenedConcurrently, the fundamentals of supply and demand exhibited a lackluster performance, with an evident downward trend on the demand sideEven though the OPEC+ meetings maintained production cut policies, these measures could not alter the prevailing market dynamics, leading to tightening price ranges of oil until December 25th.

From the supply perspective, geopolitical situations have long been an important supporting factor for oil pricesFor example, tensions in the Middle East can directly impact market expectations regarding crude oil supplyShould geopolitical tensions ease in 2025, the support on the supply side for oil prices could significantly diminish, akin to losing a crucial pillar, potentially leading oil prices to descend againThis is a scenario that market observers must closely monitor and prepare for.

The situation on the demand side is equally grim, with a noticeable slowdown in demand growthAccording to the International Energy Agency (IEA) report, global oil demand growth is projected to decline massively from 2.3 million barrels per day in 2023 to just 1.2 million barrels per day in 2024. This downturn is primarily a consequence of headwinds facing the global economy, which has been beset with uncertainties and challenges that create insufficient momentum for oil demand

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Moreover, tightening energy efficiency standards across various sectors have prompted enhanced energy utilization efficiency, thereby reducing reliance on crude oilThe rapid increase in the number of electric vehicles has also encroached upon the traditional gasoline car market, further constraining oil demand and forming a significant barrier against rising U.S. crude oil prices.

On a macroeconomic level, the monetary policies of the Federal Reserve play a critical role in influencing oil pricesFollowing the Fed's initial interest rate cut on September 18, both Brent and WTI crude prices experienced immediate fluctuations, but they rallied the next day, indicating the market's complex reaction to the new monetary policyOn December 19, the Federal Reserve lowered the benchmark rate by 25 basis points, resulting in a modest uptick in U.S. crude futuresWhile interest rate cuts can reduce borrowing costs and stimulate economic growth, theoretically leading to a depreciation of the dollar and enhancing the competitiveness of oil prices (priced in dollars), there are caveatsIf the Fed signals economic slowdowns ahead, market expectations for future oil demand could dwindle correspondingly, producing negative effects on pricesThe anticipated slowdown in Fed rate cuts expected in 2025 adds another hurdle for oil prices trying to gain strength.

From a technical analysis standpoint, while U.S. crude oil prices have returned above moving averages, they continue to trade closely around these averages, indicating a relatively balanced tug-of-war between bullish and bearish market forcesIn terms of market structure, there is still a struggle to escape from a sideways rangeIn the short term, oil prices appear to be in a standstill, necessitating a wait for new developments in fundamental contexts such as changes in geopolitical landscapes, adjustments to OPEC+ policies, and signals for global economic recovery

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