Propelled higher as the crude oil complex strengthens. Brent crude gained another 1% yesterday with a close of USD 77.05/b and an intraday high of USD 77.3/b. It traded initially in a normal reverse to the USD index, but in the end, it took little notice of the dollar which gained 0.4% on the day with Brent crude gaining 1% as well. One to three months’ time-spreads continued to inch higher either as a reflection of tight crude fundamentals or rising front-end speculative positions or both. Brent is gaining another 1% this morning to USD 77.8/b fueled higher by indications by API that US stocks fell 4 million barrels last week while Russian crude oil shipments fell to 16-months low into the start of 2025. One to three months’ time-spreads continues to rise this morning with the average for Brent, WTI and Dubai rising to the highest since late September last year.

Crude oil stocks set to fall further with good help from Russian crude shipments at 16 mths low. But oil products seem to be a different story. The backdrop for the crude oil price rally into the new year clearly seems to come from crude oil fundamentals which has helped to drive time-spreads higher, Saudi Arabia official selling prices higher and crude stocks lower. API yesterday indicated that US crude oil stocks fell 4 m b last week. But it also indicated that US gasoline stocks rose by 7.3 m b with diesel stocks probably up 3.2 m b. So overall the API report wasn’t all that bullish except for the fact that crude fundamentals continued to tighten. Genscape has indicated that ARA crude stocks fell 3.9 m b over week ending 3 January. Russian crude exports down to 16 months low probably helps to explain part of the strengthening of the crude complex.

Brent will likely trade USD 80-90/b if the 1-3 months’ crude oil time-spreads rises to USD 1.5-2.0/b. The average 1-3 months’ time-spread for Brent, WTI and Dubai this morning is USD 1.39/b vs only USD 1.2/b yesterday versus only USD 0.73/b in December 2024. If we look at guidance for the relationship between these time-spreads versus Brent crude 1 month flat-price we see that if this Brent, WTI and Dubai 1-3 months’ time-spread is trading in the range of USD 1.5 – 2.0/b then the Brent crude 1-month contracts should trade in the range of USD 80-90/b. If the crude fundamentals and time-spreads continues to strengthen, then we should naturally trade in the range of USD 80-90/b with further upside to come from the current USD 77.8/b.

The front-month Brent crude oil price versus the 1-3 months’ time-spreads. Trading in high sync.

The Brent crude oil price versus the average of 1–3 months’ time spreads for Brent, WTI and Dubai in USD/b. In 2024 Brent typically traded USD 80-90/b when the time-spreads were in the range of USD 1.5-2.0/b. So further strengthening of the crude oil complex with yet higher time-spreads will likely shift the Brent flat-price to USD 80-90/b.

The technical picture is getting challenging. Pullbacks and struggle in the high 70ies likely. The technical picture has however started to become challenging as the RSI has moved very close to overbought. Thus, even if the crude fundamentals continue to strengthen, we’ll likely experience some pullbacks as we hit the 200 dma currently at USD 79.14/b. So, Brent crude will likely struggle for a little while in the high-70ies before breaking into the 80ies.

The Brent crude 1mth contract vs RSI and 50, 100 and 200 dma. Now very close to overbought.

Brent crude jumped USD 2.3/Brent crude to Friday 3 January. got off to a good start in 2025 with a gain of USD 2.3/b from Friday 27 December to Friday January 3. The close on Friday at USD 76.51/b was the highest close since October. Brent also rallied through the 100-day moving average last week with that measure now sitting at USD 74.35/b which is not too far below the current price after all. The RSI has crawled closer to overbought (70) with latest level at 63.7. This morning Brent is falling back 0.5% to USD 76.2/b along with softer industrial metals and initially at least a decline in EU nat gas prices of 2-3%.

Cold weather and end to Russian piped gas helped Brent higher. Brent crude probably got some help from lower US crude stocks, colder than normal weather in North-West Europe and the US, a rally in EU nat gas prices (cold weather and end of Russian piped gas to EU) and higher oil refining margins because of all that.

OPEC+ proved strong resolve on supply restraint in 2024. Supportive for 2025 outlook. On the positive side we have solid resolve by OPEC+ to keep oil prices steady. They have confirmed and reconfirmed this solid resolve again and again over the past half year by postponing heralded production hikes time and time again. There will be no increase in Q1-25, and then the latest plan is to increase production gradually by 2.2 m b/d over 18 months from April. If need be, they will likely postpone yet again if needed when we get towards April.

Curbs to Iranian oil exports are necessary for US oil production to rise strongly. Donald Trump has promised a large increase in US crude oil production. That is however only possible if oil prices do not fall. If the US embarked on a rapid increase in its crude oil production of 3 m b/d then OPEC+ would throw in the towel of production cuts, the oil price would crash, and US production would fall by 3 m b/d rather than to rise by 3 m b/d. US oil producers knows this very well and Donald Trump probably also understands this. The only possible way for a significant production increase in US crude oil production without crashing the price is if someone else in the global oil supply leaves the party. In the eyes of Donald Trump, that someone is probably Iran. Donald Trump has forced Iranian oil exports out of the market once before in 2018 when they went from around 2 m b/d to close to zero. A repeat of this would probably require cooperation from China. In a trade deal between the US and China it is not at all impossible with such a clause (that China stops importing oil from Iran). China may be content if oil supply is plentiful and affordable. And if troubles arise, China could always restart imports of Iranian crude oil.

China weakness is still disturbing. Chinese crude oil imports rose 1.3 m b/d to November as Chinese Teapot refineries got to borrow quotas from 2025. That gave strength to crude oil at the end of the year. But oil products supplied in China were down 380 k b/d y/y in November (Argus) to an estimated 15.3 m b/d. Chinese economy turning the corner in 2025 would blow away a lot of the bearish sentiment in the market.

Cold weather and an end to piped nat gas from Russia has probably helped Brent crude higher into the new year. Higher heating oil demand and higher refinery margins gave helped to lift Brent crude higher. Fuel oil 3.5%, 0.5% as well as Brent crude is now cheaper than nat gas. Historically very unusual except for the period since the Russian invasion of Ukraine.

Saudi Arabia lifted its Official Selling Prices (OSPs) to Asia by USD 0.5-0.6/b. Proves confidence that they will sell their crude even at higher relative prices to the Dubai Marker. Stronger front-end backwardation in the Dubai marker in December is probably the reason.

Saudi Arabia’s OSPs to Asia for February are softer than 10yr average in the light-ends as the US shale oil boom has hurt that part, while OSPs are slightly stronger than the 10yr for the heavy end of the complex.

Brent crude prices dropped by USD 1.4 per barrel yesterday evening, sliding from USD 74.2 to USD 72.8 per barrel overnight. However, prices have ticked slightly higher in early trading this morning and are currently hovering around USD 73.3 per barrel.

Yesterday’s decline was primarily driven by a significant strengthening of the U.S. dollar, fueled by expectations of fewer interest rate cuts by the Fed in the coming year. While the Fed lowered borrowing costs as anticipated, it signaled a more cautious approach to rate reductions in 2025. This pushed the U.S. dollar to its strongest level in over two years, raising the cost of commodities priced in dollars.

Earlier in the day (yesterday), crude prices briefly rose following reports of continued declines in U.S. commercial crude oil inventories (excl. SPR), which fell by 0.9 million barrels last week to 421.0 million barrels. This level is approximately 6% below the five-year average for this time of year, highlighting persistently tight market conditions.

In contrast, total motor gasoline inventories saw a significant build of 2.3 million barrels but remain 3% below the five-year average. A closer look reveals that finished gasoline inventories declined, while blending components inventories increased.

Distillate (diesel) fuel inventories experienced a substantial draw of 3.2 million barrels and are now approximately 7% below the five-year average. Overall, total commercial petroleum inventories recorded a net decline of 3.2 million barrels last week, underscoring tightening market conditions across key product categories.

Despite the ongoing drawdowns in U.S. crude and product inventories, global oil prices have remained range-bound since mid-October. Market participants are balancing a muted outlook for Chinese demand and rising production from non-OPEC+ sources against elevated geopolitical risks. The potential for stricter sanctions on Iranian oil supply, particularly as Donald Trump prepares to re-enter the White House, has introduced an additional layer of uncertainty.

We remain cautiously optimistic about the oil market balance in 2025 and are maintaining our Brent price forecast of an average USD 75 per barrel for the year. We believe the market has both fundamental and technical support at these levels.