Brent Rises But Remains in Range

Despite recent geopolitical developments, brent crude oil prices have remained relatively stable as investors look to the new year.​

What Crisis?

Crude prices have shown resilience despite significant political shifts. Last week, the ouster of Bashir Al-Assad from power in Syria triggered an unexpected dip in oil prices. However, the instantaneous and soon reversed market reaction stems from Syria's lack of major crude transit routes. At the same time, a potential peace settlement between Russia and Ukraine looms on the horizon after President-Elect Trump met with Ukrainian President Volodomir Zelenskiy. Markets have discounted geopolitical risks up until yesterday, even as the Biden Administration moved to impose fresh sanctions on Russia.

The price outlook for Brent appears to have shifted toward fundamental factors, with a focus on the US and China as primary market movers. The EIA underlined expectations of increased US energy demand next year, though domestic sourcing is expected to reduce crude imports in 2025. The agency also noted that Chinese demand suggested a slowdown, with speculation mounting about an earlier-than-anticipated peak in Chinese oil consumption due to EV adoption and renewable energy transitions.

Cautious Response to Stimulus

Crude prices posted gains at the start of the week following China's surprise announcement on Monday that it would lower interest rates next year and take additional measures to boost its economy. However, investors remained wary pending more details. After all, the September stimulus package has yet to materialise into tangible economic growth or increased crude demand. In fact, Chinese import patterns suggest strategic inventory building at lower prices, signalling a potential price surge when demand from China starts to reduce. For now, prices may see short-term support from the EU agreeing to new sanctions against Russia's "shadow fleet" of ageing, uninsured tankers used to circumvent existing sanctions.​

Keeping with the theme of an uptick in demand being mostly short-term, OPEC+ slashed its demand forecast in its final report for the year on Wednesday, its largest downward revision in 12 months. Though the cartel maintained a demand growth outlook for 2025, the scale of growth has decreased remarkably, with the Chinese demand slowdown cited as the primary factor for the revision. This move brings OPEC+ closer to more conservative market forecasts and could signal additional production cuts by its members ahead, as OPEC+ typically delivers the most optimistic of projections.

Brent Consolidates in Triangle

Brent crude has consolidated within a triangle formation in the longer term, suggesting an imminent breakout in either direction. The pattern shows key resistance at $76 and $81, while support sits at $70 and $68.50. The tightening price action indicates building momentum, with the direction of the breakout likely to determine the medium-term trend. The recent price increase yesterday places Brent near the upper boundary of the pattern, which typically resolves within three to four weeks.

Source: SpreadEx / Brent Crude

Key Takeaways

The oil markets appear to have shifted focus from geopolitics to fundamentals, with the OPEC+ downward revision in demand growth and Chinese consumption patterns weighing on sentiment. While short-term price action remains range-bound despite Europe's fresh sanctions on Russia boosting brent higher, a triangle setup suggests an impending breakout in either direction. Market participants are monitoring fundamental developments in the US and Chinese economies for direction.