- Oil prices have started 2025 strong, defying expectations of a downturn fueled by worries about slowing demand.
- Cold weather, coupled with US policy decisions on offshore drilling, have contributed to the upward price movement.
- Brent Crude has broken through key resistance levels, is $80 a barrel a matter of time?
Oil prices have had a surprisingly positive start to 2025. The reason I say this is because the narrative heading into 2025 was one of concerns largely centered on dwindling demand, particularly from China.
There has been an uptick in demand however, as winter grips Europe and America leading to heightened fuel demand. This coupled with repositioning as the New Year began could in part explain the recent rally.
US Offshore Drilling in 2025 – Trump vs Biden
Since the US election in November, markets have been eyeing reduced regulations around US offshore oil drilling which could lead to increased supply and weigh on prices. However, this week President Biden used his executive powers to stop offshore drilling in over 625 million acres of U.S. ocean, the White House said Monday.
This could have contributed to the rise in Oil prices at the start of the week. Incoming President Donald Trump said he will immediately reverse such a move when he takes office, however this does not appear to have dampened the move.
The incoming President made similar promises in 2016, but opposition from states like Florida led him in 2020 to sign a memo telling the Interior secretary to block drilling off the coasts of Florida, Georgia, and South Carolina until 2032. It will be intriguing to see how this plays out as President elect Trump gave in during his previous administration. Will we see a similar story this time around?
China Demand and US Dollar Dynamic
Saudi Arabia will export less crude oil to China in February compared to January. This comes after the country raised prices and OPEC+ continued cutting production in the first quarter.
Saudi Aramco plans to ship about 43.5 million barrels to China in February, down from 46 million barrels in January, which was the highest in three months.
This week’s inventory data from the API on January 7, showed U.S. crude oil supplies dropped by 4 million barrels, and stocks at Cushing, Oklahoma, fell by 3.1 million barrels. At the same time, gasoline and distillate (like diesel) supplies went up.
The EIA report yesterday revealed that U.S. crude stocks fell by almost 1 million barrels, with Cushing’s storage hitting its lowest level in 10 years. Gasoline and distillate supplies also increased.
The recent bullish move for Oil prices may face headwinds from a strong US Dollar. Moving forward it will be key to see if US President Elect Trump reels back President Biden’s offshore drilling ban while US policy toward Iran and Russia may also affect oil prices moving forward.
Technical Analysis
As discussed last week, Oil prices have managed to break above the key confluence level at 76.35 which has acted as support since.
Yesterday saw a pullback in Oil prices following a somewhat bearish EIA report on inventories while the continued advance of the US dollar ripples across markets.
There are few possible scenarios for oil prices. let us look at how each of them may play out.
Bulls remain in control for now but a deeper retracement in price toward the 75.00 psychological level or the 100-day MA at 74.55 cannot be ruled before fresh highs are printed above the 78.157 handle. This would be scenario 1.
Looking at the technicals and a rally from here toward recent highs at 78.157. A break of this opening up a retest of the psychological 80.00 mark.
These are the two most likely scenarios toward the end of the week barring any significant surprises. Even then i expect one of these potential scenarios to play out with a any unforeseen changes likely to just serves as a catalyst and speed up the move.
Brent Crude Oil Daily Chart, January 9, 2025
Source: TradingView (click to enlarge)
Support
- 76.35
- 75.00 (psychological level)
- 74.55 (100-day MA)
Resistance
- 77.50
- 78.15
- 80.00
