As the world grapples with economic recovery and shifting energy dynamics, the price of crude oil has surged to new heights, with West Texas Intermediate (WTI) and Brent crude hovering around the $80 per barrel mark.
The question on the minds of investors, policymakers, and consumers alike is: Is $80 oil here to stay?
What’s driving oil higher?
Despite positive geopolitical developments in the Middle East with the ceasefire between Israel and Hamas, traders remain focused on tightening supply fundamentals.
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According to Reuters, the ceasefire agreement, brokered by U.S., Egyptian and Qatari diplomats, outlines an Israeli military withdrawal from Gaza and a prisoner exchange.
While this marks a significant step toward de-escalation in the Middle East, oil markets seem more concerned with a series of factors that could constrain global crude flows in the near term.
The Energy Information Administration reported last Wednesday a sharper-than-expected decline in U.S. crude inventories for the week ending Jan. 10, further fueling the market’s bullish sentiment.
Data showed U.S. crude oil inventories fell by 1.961 million barrels last week, exceeding market expectations of a 1.6 million-barrel draw.
This marked the eighth consecutive weekly decline, pushing U.S. crude commercial stockpiles — excluding the Strategic Petroleum Reserve — to their lowest levels since April 2022.
The Impact Of U.S. Sanctions On Russia, Iran
On Jan. 10, the Biden administration announced sweeping new sanctions targeting Russia.
The measures include restrictions on two major Russian producers, Gazprom Neft and Surgutneftegaz, as well as over 160 tankers carrying oil from Russia, Iran, and Venezuela.
The sanctions also complicate ship insurance arrangements, further disrupting logistics for these nations.
The International Energy Agency, in its latest Oil Market Report released Wednesday, highlighted the potential ramifications of these sanctions, stating: “Benchmark crude oil prices rallied in early January as U.S. sanctions on Iran and Russia intensified and freezing temperatures swept across large parts of the Northern Hemisphere.”
Speculation is mounting that the incoming U.S. administration under President-elect Donald Trump will adopt an even tougher stance on Iran, potentially exacerbating supply constraints.
“While it is too early to fully quantify the potential impact from these new measures, some operators have reportedly already started to pull back from Iranian and Russian oil,” the IEA said.
Freezing temperatures across major oil-consuming regions in the Northern Hemisphere have further tightened energy markets, boosting demand for heating fuels. This seasonal surge in consumption, combined with shrinking inventories and sanctions-related disruptions, leaves the oil market vulnerable to additional supply shocks.
“If decreases in supply from weather impacts, sanctions, or other developments become substantial, oil stocks can quickly be drawn to meet operational requirements in the near term,” the IEA stated.
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JP Morgan’s view
“We expect the price to decline to $73 in 2025, remaining largely consistent with our 2024 outlook published last November, before slipping to $61 in 2026,” JP Morgan analysts said in the report.
“Fundamentally, our outlook for Brent oil prices anticipates a shift in the global oil market from a balance in 2024 to a large 1.2 million barrel per day surplus in 2025, followed by another 0.9 million barrel per day surplus in 2026,” they added.
The J.P. Morgan analysts stated in the report that “demand is not the primary concern, as global oil demand growth is expected to slow from 1.3 million barrels per day this year to 1.1 million barrels per day next year, before rebounding to 1.3 million barrels per day in 2026, aligning with long-term historical averages”.
The analysts warned in the report that “the real challenge lies in the excess supply”.
“After stumbling the last few quarters, non-OPEC+ production has returned to growth in 4Q24 and is projected to surge by 1.8 million barrels per day in 2025, driven by large-scale, price-inelastic offshore developments in Brazil, Guyana, Senegal and Norway,” they said.
“In total, five floating production, storage and offloading (FPSO) vessels, with a combined capacity of one million barrels per day, are committed for delivery in 2025,” they added.