New Year, New Surge: Will Oil Prices Keep Rising?

The outlook for crude oil supply in 2025 remains uncertain, but the short-term increase in demand has driven oil prices higher.

Oil price fluctuations are influenced by multiple factors, primarily including global supply and demand dynamics, geopolitical risks, crude oil inventory levels, and OPEC+ policies. Since the beginning of last year, OPEC+ has implemented production cuts, which have helped support oil prices.

However, between July and September, oil prices fell sharply due to a de-escalation in geopolitical risks, especially with the progress of the Israel-Palestine ceasefire talks, as well as capital market shocks that suppressed the valuations of risk assets like crude oil.

Geopolitical Influence

On the supply side, geopolitical tensions have provided some support for oil prices. If geopolitical tensions ease in 2025, this support could weaken, and oil prices may face downward risks. Investors should remain cautious about the potential for prices to drop again.

This week, attention should be focused on the EIA (U.S. Energy Information Administration) inventory data. According to the data released on December 31, U.S. oil production increased by 259,000 barrels per day in October, reaching a record high of 13.46 million barrels per day, driven by a surge in demand—the strongest since the pandemic.

The EIA forecasts that U.S. oil production will rise to a new record of 13.52 million barrels per day this year. However, some analysts believe that supply could tighten this year, particularly due to the policies of President-elect Trump, including sanctions on Iranian oil exports, which may provide short-term support for oil prices.

Impact of Fed Rate Cuts

At the same time, according to CMEs “FedWatch” tool, the probability of the Federal Reserve keeping rates unchanged in January 2025 is 88.8%, while the chance of a 25 basis point rate cut is 11.2%.

Typically, when the Federal Reserve cuts rates, the U.S. dollar depreciates, which in turn tends to push oil prices higher. Rate cuts increase market liquidity, lower borrowing costs, and stimulate economic demand, thereby driving up both oil demand and prices.

However, oil prices will still be affected by a combination of factors, including global economic conditions and geopolitical risks, so a comprehensive analysis of various dynamics is necessary.