Oil outlook Q1 2025

Geopolitics and supply dynamics shape oil prices in Q1

By Raed Alkhedr | @raedalkhedr | 23 January 2025

Oil outlook Q1 2025

As Q1 2025 unfolds, the global oil market finds itself navigating a mix of challenges and potential opportunities. While increased U.S. production and subdued demand growth pose headwinds, a potential rebound in China’s economy and lingering geopolitical uncertainties could drive prices higher.

The balance of the market will depend on how effectively OPEC+ manages production adjustments and how non-OPEC supply growth impacts overall market dynamics. With these competing factors in play, the trajectory of oil prices in Q1 2025 remains uncertain, with both supply-side actions and broader economic developments likely to play key roles in shaping the market’s stability.

Overview of Q4 2024

During the final quarter of 2024, global oil prices fluctuated within a narrow range of $66 to $76 per barrel. Prices experienced volatility influenced by several key factors, including

Economic outlook

The global economy faced significant challenges, particularly persistent geopolitical tensions throughout the year, coupled with looming recession fears. OPEC revised down its forecast for global oil demand in 2024, putting downward pressure on prices.

Geopolitical tensions

Geopolitical tensions, including conflicts in the Middle East and the ongoing Russia-Ukraine war, created substantial uncertainty in the global oil market. Fears of potential supply disruptions remained high, with some market participants concerned that these conflicts could escalate and disrupt key oil-producing regions.

Rising U.S. oil supply

In 2024, the U.S. continued ramping up oil production, hitting a record-high level of 13.4 million barrels per day (bpd) in August. According to the International Energy Agency (IEA), the U.S. is expected to lead non-OPEC+ supply growth, contributing approximately 1.5 million bpd between 2024 and 2025.

OPEC+ extends production cuts

In December 2024, OPEC+ announced it would extend its production cuts through Q1 2025 to support global prices amidst slowing demand growth and increased production from non-OPEC countries.

Initially, OPEC+ had planned to begin gradually increasing production in January 2025, but with the market showing signs of fragility, this decision was postponed until April. The gradual increase will now be spread over 18 months, allowing the organisation to carefully monitor the market’s response and ensure that supply increases do not overwhelm the recovery.

Could oil prices rise in Q1 2025?

Despite ongoing challenges in the oil market, several factors could support a rise in global oil prices during the first quarter of 2025:

Expectations for a rebounding Chinese economy

China remains the world’s largest consumer and importer of crude oil, with daily imports exceeding 11.8 million barrels.

Despite the global economic slowdown, China achieved moderate growth of around 4.6% in 2024. Stronger growth is anticipated in 2025, which could boost oil demand.

This growth is expected to be driven by a combination of government stimulus measures, both monetary and fiscal. Chinese policymakers are likely to continue their expansionary monetary policies, which could include further interest rate cuts and credit stimulus aimed at spurring investment.

Additionally, the government’s fiscal policies are set to focus on significant investments in infrastructure and technological innovation. These initiatives are designed to create jobs and stimulate domestic demand, ultimately leading to an increase in oil consumption as the economy expands.

Ongoing geopolitical tensions

While global geopolitical conditions have somewhat stabilised recently, the risk of renewed tensions, particularly in the Middle East, remains a key factor for oil prices in Q1 2025. Escalating conflicts in the region could disrupt supply and drive prices higher.

Additionally, the ongoing Russia-Ukraine conflict continues to impact oil markets, with the potential for further sanctions or supply disruptions affecting European markets.

Even the possibility of new U.S. foreign policy shifts or military engagements could add to market uncertainty, pushing prices upward in response to potential supply risks.

Oil production in 2025

While OPEC+ production cuts remain in effect, some countries are increasing their production. Also, estimates suggest that non-OPEC countries will increase output by approximately 1.5 million bpd in 2025, potentially impacting market balance.

Several key producers are planning increases in production:

United Arab Emirates (UAE):

OPEC+ approved an increase in the UAE’s baseline production quota by 300,000 bpd, reaching 3.519 million bpd in 2025. This increase will be implemented gradually from April 2025 through September 2026.

Kazakhstan:

Despite commitments to OPEC+, Kazakhstan plans to raise production. Under the latest agreement, it can increase output by up to 41,000 bpd in 2025 while adhering to ongoing cuts.

Libya:

Libya’s oil production surpassed 1.4 million bpd, with plans to boost output to 1.5 million bpd in 2025. The National Oil Corporation also aims to reach 2 million bpd within three years.

Technical analysis of price movements

Oil outlook Q1 2025

During the last quarter of 2024, WTI traded sideways within a price channel ranging between support at $66.80 and resistance at $72.50, forming a broader downward channel. However, the price managed to break above the upper boundary of this range, surpassing key resistance levels at $71.00 and $72.50, pushing it to new highs, currently reaching $74.30.

The current bullish momentum is expected to continue, targeting new levels at $75.50 and $77.00, with potential to reach $78.70 if the uptrend persists. On the downside, the $72.50 level now acts as a critical support zone after flipping from resistance. Should the price fall below this area, we may see bearish corrections towards $71.00 and $68.50.

Overall, breaking above the $72.50 level indicates a structural shift in the market towards an uptrend, increasing the likelihood of further bullish moves in the near term. Monitoring support levels will be crucial for assessing the strength of the price action.

Support levels:
$72.50 – $71.00 – $68.50

Resistance levels:
$75.50 – $77.00 – $78.70