Page 26 - Policy Economic Report_Jan 25

POLICY AND ECONOMIC REPORT
OIL & GAS MARKET

Oil Market

Crude oil price – Monthly Review

Benchmark crude oil prices rallied in early January as US sanctions on Iran and Russia intensified and
freezing temperatures swept across large parts of the Northern Hemisphere. Brent crude futures hit a
four-month high of $81/bbl by mid-January, up $8/bbl from a month-ago.

Following a relatively mild start to the winter heating season, the weather turned decidedly colder in
December in Canada, the northern and central regions of the United States, much of Europe, Russia, China
and Japan. Average heating degree days were significantly higher than a year ago and slightly above the
five-year average, boosting oil demand. OECD oil demand for 4Q24 has been raised by 250 kb/d,
underpinning a 90 kb/d upward adjustment to our global growth estimate for 2024. Oil demand trends in
non-OECD economies were mixed. While China posted modest y-o-y growth in November, the latest data
for Saudi Arabia, Brazil and India were all below expectations. Estimated growth of 940 kb/d in 2024 and
1.05 mb/d in 2025 will push world oil demand to 104 mb/d.

Prices also got a boost as traders considered multiple supply risks. Near-term, weather-related shut-ins in
North America could have a significant impact, with Cushing crude inventories at decade lows. Last winter,
oil production in the United States and Canada plunged by more than 1.8 mb/d from December to January
due to an Arctic cold snap. A smaller seasonal drop in supply is expected this year, as the prolific Permian
Basin has so far been spared major weather impacts.

Hedge funds and other money managers closed a large volume of short futures and option positions in
the NYMEX WTI futures market and raised long positions in both ICE Brent and NYMEX WTI futures and
option contracts. Between the weeks of 26 November and 31 December, hedge funds and other money
managers bought an equivalent of 144 mb of oil in Brent and WTI futures and options.

Sweet-sour crude differentials narrowed in the US Gulf Coast (USGC) and Europe in December, primarily
driven by the elevated availability of light sweet crude in the Atlantic Basin, including from the US. In Asia,
however, sweet-sour crude differentials widened in December, as the sweet crude market outperformed
medium sour crudes.

Crude spot prices showed mixed movements in December. This was despite signs of supportive physical
crude market fundamentals, reflected in robust growth in the global refinery intake. The spot market
witnessed firm buying interest, boosted by demand from European and Asia-Pacific buyers, which helped
to clear January loading programmes. The strength of the market was also reflected in the continued
decline in OECD commercial stocks in December, including in the US. The North Sea Dated price was little
changed in December, averaging slightly lower, m-o-m, pressured by the high availability of light sweet
crude from the USGC and West African markets. However, WTI and Dubai's first month contract rose.

In December, the ORB value rose slightly by 9¢, or 0.1%, m-o-m, to stand at $73.07/b, amid a mixed
performance of ORB component-related crude benchmarks. A decline in most official selling prices (OSPs),
the medium and heavy sour crudes exported to Asia, offset the higher OSP values of sweet grades and

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