Bearish Mood Fades as Market Focus Shifts to Supply

Oil prices have picked up at the start of the new year, and current price spreads signal a tighter market ahead. Supply seems to be top of mind, with some analysts saying the higher oil price is at least partly driven by expectations that the incoming US government will tighten sanctions on key producers, particularly Iran. Brent has moved above its narrow $70-$75 per barrel trading range to around $77/bbl in the first full week of trading in 2025. Current 2025 forecasts still mostly see Brent staying in the low $70s — likely a carryover of 2024 pessimism driven by demand concerns. But as 2025 kicks off, market players seem more focused on the possibility that supply this year will be lower than previously thought. Last year was characterized by confusion around actual levels of supply and demand, as data took months to catch up with market signals that were indicating greater weakness than forecasts implied. Energy Intelligence and other forecasters now see 2024 averaging a shortfall in supply, thanks to Opec-plus cuts that were rolled over last month in response to market conditions. Forecasters expect the producer group to continue its flexible approach to supply curtailments in 2025. Still hanging over the market are supply issues around conflicts in Ukraine and the Mideast that won’t be easy to resolve and persistent questions about how demand will play out in 2025. Traders are closely watching how the Northern Hemisphere winter impacts demand and the start of the new Trump administration’s impact on market sentiment and prices.