OPEC+ Production Cuts and Market Tightness
Oil markets have started 2025 on a strong note, despite concerns over potential price struggles this year due to expectations of a global oil glut. The latest rally in oil prices has been driven by several factors, including falling US stockpiles, lower supplies from Russia, and geopolitical uncertainties, particularly regarding President-elect Donald Trump’s policies.
However, despite earlier gains, oil prices faced a setback on Wednesday, with both Brent crude and WTI crude dipping over 1% due to a stronger US dollar and large increases in US fuel inventories. Brent crude dropped to $76.16 per barrel, while WTI crude fell to $73.47 per barrel.
Economic Data Impact on Oil Prices
Recent global economic data has been weaker-than-expected, which has been bearish for energy demand and crude oil prices:
- US December ADP employment change came in at +122,000, weaker than the expected +140,000.
- Eurozone December economic confidence fell to 93.7, a 15-month low, below the expected 95.6.
- German November factory orders dropped -5.4% m/m, much worse than the expected -0.2%.
These data points highlight the slow recovery in major global economies, which might further limit oil demand.
OPEC+ and Production Updates
OPEC’s second-largest producer, Iraq, exported 3.25 million barrels per day (bpd) in December, down slightly from 3.29 mbpd in November. Despite this, the country’s production declined by 40,000 bpd in December, partly due to power outages that disrupted its compliance with the OPEC deal.
Saudi Arabia raised its crude prices for Asian customers for delivery in February by 60 cents per barrel, suggesting tighter market conditions. Additionally, Russia’s crude production was 8.971 million bpd in December, slightly below its OPEC+ pledge.
Renewed Sanction Fears and Iran’s Export Outlook
Iran has increased its crude exports by 10% to 2 million bpd, with China continuing to be its largest importer. However, new sanctions and a ban by the Shandong Port Group on US-sanctioned tankers will make it harder for Chinese refiners to import Iranian crude. This could significantly affect Iranian exports to China, which had been receiving large volumes of crude.
EIA Inventory Data
The US Energy Information Administration (EIA) reported that crude inventories fell by 959,000 barrels, which was smaller than expected. Meanwhile, gasoline and distillate stocks saw significant builds, indicating weak demand. However, crude supplies at Cushing—the delivery point for WTI futures—dropped by 2.5 million barrels, a bullish indicator for oil prices.
Outlook and Resistance Levels
Oil prices have rallied 12% since October, driven by speculation of higher stimulus from China, tighter sanctions on Iran and Russia, and extended production cuts by OPEC+. However, demand remains weaker, and while oil prices could test the $76-$78 resistance level in the short term, the overall market remains at risk of slipping into a glut unless we see stronger demand from major consumers like China and India.
WTI Crude February:
- Support: $69
- Resistance: $76-$78
MCX Crude January:
- Support: 6,000
- Resistance: 6,500
The outlook remains cautiously bullish in the short term, but sustained price growth will depend on stronger global demand and further geopolitical developments.
