Oil prices remain stable: Asia to drive global demand Caliber.Az review

The past year, marked by global conflicts in the Middle East and Ukraine, proved challenging for maintaining stability in the energy market. Despite high volatility in oil prices amid declining demand, 2024 largely managed to avoid sharp price collapses.

Forecasting the future of commodity markets in the new year remains a complex task. However, the expert community generally believes that the OPEC+ member countries' policy of reducing oil production will help curb bearish trends. Moreover, an improvement in oil demand is anticipated, with Asian countries expected to remain the primary drivers of growth, as they were last year.

The ongoing sanctions standoff between the collective West and Russia, against the backdrop of the unresolved Russia-Ukraine conflict, missile exchanges between Iran and Israel, and attacks by Yemen's Ansar Allah movement on civilian vessels in the Red Sea, remained significant negative factors affecting the global energy market last year.

As a result, the market experienced a bullish trend from September to November, with repeated increases in Brent crude futures prices on the London ICE Futures exchange. Moreover, rising hydrocarbon prices drove up the stock values of oil companies, including BP, Shell, Chevron, and ExxonMobil, as well as APA Corporation and the U.S. shale oil producer Occidental Petroleum.

Nevertheless, the oil market entered the new year on a positive note. On 3 January 2025, the price of February Brent crude futures rose to $76.53 per barrel, while the price of Azerbaijani Azeri Light crude increased by 2.3%, reaching nearly $79 per barrel on the global market.

The future trajectory of the oil market will depend on a range of political and fundamental economic factors. Notably, the threat of renewed escalation in the western Middle East has significantly diminished due to the efforts of the Israeli military, which defeated the main forces of Hezbollah and other groups in Lebanon, as well as the victory of the Syrian opposition and the change of power in Damascus at the end of last year.

Undoubtedly, one cannot overlook the pivotal development of Donald Trump assuming the presidency of the United States. His anticipated policies in the Middle East remain unclear. It is particularly difficult to predict whether the new U.S. president will advocate for maintaining the current status quo or instead intensify efforts to decisively expel Iranian proxies from Iraq and Yemen.

From an economic perspective, Donald Trump, during his election campaign, promised to boost hydrocarbon production in the United States, including expanding output in the shale oil sector. However, it is important to note that American oil companies are cautious in this regard. Given the current modest growth in global demand, any reckless actions could lead to a collapse in oil prices.

Such an outcome would not only harm the participants of the OPEC+ agreement but also adversely affect U.S. shale oil producers. With production costs exceeding $50 per barrel, a sharp decline in global prices could render the shale industry entirely unprofitable.

As for the future actions of OPEC+ member states, the group has successfully maintained a unified policy among oil-producing nations. In early September last year, OPEC+ announced plans to increase production quotas by an additional 180,000 barrels per day starting from October 1, 2024. However, this decision was postponed to December and eventually deferred to 2025.

It is worth noting that early last autumn, oil production in Libya, which holds Africa's largest hydrocarbon reserves, resumed. At the same time, fuel demand in China declined, creating conditions for subsequent reductions in oil prices. Under these circumstances, increasing production quotas would have been highly imprudent.

Ultimately, eight OPEC+ countries—Saudi Arabia, Russia, Iraq, the UAE, Kuwait, Kazakhstan, Algeria, and Oman—agreed to extend the voluntary oil production cut of 2.2 million barrels per day, initially established in November 2023, until the end of 2024. These nations also reaffirmed their collective commitment to fully adhere to the Declaration of Cooperation, including additional voluntary production adjustments to account for excess output since January 2024.

According to information published by Russia’s Interfax agency in early 2025, OPEC+ countries' oil production plans, factoring in quotas, voluntary cuts, and compensation for previous under-cuts, will decrease by 21,000 barrels per day in January compared to December, reaching 35.43 million barrels per day. Preliminary reports indicate that the alliance intends to revisit the gradual increase in oil production around April 1 of this year.

Experts from Bloomberg and other analytical institutions predict a solid growth rate in oil demand in 2025, roughly in line with historical averages. Global agency forecasts estimate a demand increase of 1–1.5 million barrels per day (bpd), or approximately 1.2% year-on-year growth, aligning with the average pace of the past two decades.

Asian countries are expected to remain the primary drivers of growth, as in previous years. Moderate demand growth is anticipated in China, where analysts believe government economic stimulus measures will have a tangible impact. However, according to the U.S. Department of Energy, China’s role will diminish, ceding prominence to India and other Asian nations, which collectively will account for a demand increase of 0.48 million bpd.

As a result, Brent crude prices in the first half of this year are expected to remain close to last year’s levels, ranging between $70 and $80 per barrel.

According to the November forecasts of the Central Bank of Azerbaijan (CBA), the average oil price on the global market in 2025 could reach $79.2, which is quite comfortable for the country. The projected price for a barrel of oil in Azerbaijan's 2025 state budget is set at $70, which accounts for risks related to several factors.

In recent years, Azerbaijan has experienced a decline in oil production due to the natural reduction in output at its oil fields. According to the Energy Institute, oil production in Azerbaijan has decreased by an average of 3.6% annually over the past decade. However, according to optimistic December forecasts by the International Energy Agency (IEA), oil production in Azerbaijan is expected to rise from 0.61 million barrels per day in the first quarter of 2025 to 0.64 million barrels per day.

Regardless of the accuracy of these forecasts, Azerbaijan remains a strong proponent of OPEC+’s strict policy on maintaining production quotas, which has ensured stable oil prices in recent years.