Oil prices continued to rise on Monday morning during trading on major global exchanges, reflecting steady demand and optimistic market expectations, and then went down slightly. On the London Intercontinental Exchange (ICE), the price of the February Brent crude futures rose by 0.45%, reaching $72.89 per barrel, then fell to $72.82. This rise was more of a rebound from the minimum price threshold set last week by macroeconomic and banking factors
The price per barrel increased by 0.55% and reached $69.83 on the New York Mercantile Exchange (NYMEX), dropping slightly to $69.36 in the afternoon. Experts note that prices were supported by expectations for a reduction in oil reserves in the United States and stabilization of exports.
The trend of rising oil prices with subsequent stabilization is associated with the adoption of new projects by the market in 2023-2024, such as the global deployment of solar panels in the United States and China, as well as an increase in demand for electric vehicles, which affects long-term forecasts for a slowdown in oil prices. On the other hand, industrial demand for the production of components for the same renewable energy sector, the shift away from revolutionary measures in the banking sector regarding the energy transition with the arrival of the new American administration led by the moderate reformist Mr. Trump, as well as the slowdown, but still growth, of China's economy, the production cuts by OPEC+ countries, and the exponential increase in demand in South Asia (India), undoubtedly contribute to the long-term underpinning of oil demand. Geopolitical risks remain a factor for oil markets, adding uncertainty, but are unable to provide sustained support for prices.
Looking at historical data, as "Caspian Energy Media" writes, citing oilprice, the real price of oil has not changed over the past 50 years. It has fluctuated around the trend line, always returning to the average value after any significant deviation. From 1974 to 1999, the price of oil increased by 3.4% per year, while the consumer price index grew by 4.7% per year. From 1999 to 2024, the price of oil increased by 4.0% per year, while the consumer price index grew by 2.6% per year. For the entire period from 1974 to 2024, the price of oil increased by 3.7% per year, while the consumer price index also grew by 3.7% per year. Therefore, real demand in the future will be driven by market factors and economic growth indices, with adjustments for new trends in energy. According to OPEC data, global oil demand will rise to 120 million barrels per day by 2050, up from 102 million barrels in 2023, with 45% of the demand coming from India, the most populous country with a developing economy.
As for China, its real estate sector has been facing a prolonged crisis for the fifth year, as developer companies struggle to repay debts amid a decline in housing sales. Recent events, such as liquidity issues and Hong Kong's request for an extension of credit under the New World Development initiative, reflect the deepening of the domestic crisis. This sector has always accounted for about a quarter of China's GDP and has been a driver of many other economic areas. However, it is now experiencing a serious crisis, which has led to the spread of unfinished construction projects and raised suspicions about many developer companies on the brink of bankruptcy. Therefore, the situation of declining consumer demand in China will remain a growing factor in the oil market in 2025.
On a global scale, central banks in key economies are signaling a cautious monetary policy. The U.S. Federal Reserve has cut interest rates but warned about ongoing inflation, while European and Asian policymakers have preferred to maintain stricter positions. These measures reflect growing concerns over sluggish economic activity, which is expected to limit oil demand growth in 2024. Analysts now forecast weak demand growth for 2025, with supply outpacing consumption.
Western countries, including the US, EU, and the UK, have strengthened sanctions against Russian crude oil exports, targeting shadow tanker fleets and organizations providing support. However, these measures have had a limited impact on global markets.
In recent years, the US has seen record growth in solar energy, driven by the Biden administration's Inflation Reduction Act (IRA) and broader access to green financing. The Solar Energy Industries Association (SEIA) has reported record levels of added solar capacity over the past year. In the second quarter of 2024, the US solar energy market installed 9.4 GW of capacity, which is 29 percent more than the figure fixed during the same period in 2023. In the third quarter, an additional 8.6 GW was installed, which is 21 percent more than in 2023. During this period, solar energy accounted for 64 percent of all new electricity generation capacity added to the US grid. Solar projects now generate enough electricity to power 37 million homes in the United States. According to IEA data, in 2023, the capacity of solar power plants (SPPs) in China increased by 55.2%, reaching 216.88 GW. The trend of China's influence on the global automotive market shows that Chinese car production has grown from 1% to 39% of global production over the past 20 years. At the same time, the products are primarily exported to foreign markets. Given that trade between the US and China accounts for more than a third of global goods turnover, the growing level of technological solutions in energy in these two countries will influence the long-term dynamics of oil demand.
This is already reflected in the global electricity market, where 90% of electricity consumption growth in 2025 will come from renewable energy sources, while nuclear and gas energy will account for the remaining 10%. The instability of renewable energy output has triggered record periods of negative prices, which has increased the demand for reliable energy storage. In addition, industrial growth is fueled by traditional energy resources, as they are still required for the production of battery components, cars, transmission lines, wind turbine blades, and more. Therefore, oil and gas will remain at the top of energy resource demand in the coming year and in the long term. However, in its efforts to maintain prices, OPEC+ may face the challenge of the market becoming accustomed to long-term production cuts. Investment priorities in 2025 are likely to continue balancing between investments in the production, storage, and transmission of renewable energy and long-term investments in the traditional oil and gas upstream sector which shows no signs of relinquishing its position either in the coming year or in the distant future.
