Last year’s oil market was dominated by algorithmic trading, amplifying every headline about market oversupply and Chinese demand into price swings that kept crude trapped in a narrow, disappointing range—well below OPEC+’s lofty production-cut goals. This year may not see much of a change in oil’s price amplitude, but the peaks and troughs could grow sharper, setting the stage for some dramatic action.
In the second and third week of December last year, speculators in the United States significantly increased their bets on higher oil prices, Bloomberg reported this week. In fact, in the second to last week of the year, long bets on crude reached the highest in four months, the report said, for a total of close to 183,000 lots. That followed an even more significant increase in bullish positioning in the previous week, when the number of lots hit the highest in a year.
Not only this, but the so-called algorithmic traders, OPEC’s nightmare, also turned bullish on crude oil in December and started building their long positions on Brent crude and West Texas Intermediate. Apparently, even algo traders have started paying attention to something other than demand trends in China and perceptions of the balance between supply and demand that may or may not be correct.
One big reason for this change in sentiment after a year of more or less permanent pessimism is, of course, the upcoming change of the guard in the United States. Donald Trump is widely expected to seek stricter implementation of sanctions against Iran, which would inevitably mean interference with Iran’s crude oil exports. This would in turn affect the global total in oil supply—if it happens. According to forecasters, there is a good chance Trump will pursue the widely expected policy.
Iran’s oil production during Trump’s first term in office dropped from 3.8 million barrels daily in 2018 to less than 2 million barrels daily in 2020, after the U.S. President withdrew from the so-called Joint Comprehensive Plan of Action that Western powers signed with Iran in 2015. During the Biden presidency, Iranian oil production rebounded to some 3.2 million barrels daily, with exports also rising solidly, almost all of them going to China.
Given Trump’s attitude to both China and Iran, it would be safe to assume that tightening the screws on Tehran would kill two birds with one sanction stone—and this would be bullish for oil prices. It might yet become even more bullish now that interesting details are emerging about China’s EV market.
The details, as reported by CNBC this week, involve a growing portion of hybrid vehicles in total car sales, based on full-year data for 2024. The report cited market leader BYD as selling a total of 4.3 million cars last year. Of these, BYD said, close to 2.5 million were hybrid vehicles and the rest were battery electric. In other words, BYD sold more hybrids than pure EVs last year, unlike 2023, when EVs made up the bigger portion of its sales.
The full-year figures also showed that pure-play EV makers sold fewer cars in 2024 than they did in 2023, suggesting the world’s biggest EV market could be reaching a saturation point. “We still see growth in the Chinese market in terms of battery electric, but we see it sort of capping,” Joe McCabe, president of AutoForecast Solutions, told CNBC.
That trend could accelerate this year, betraying expectations of a continued slowdown in Chinese oil demand growth, especially coupled with yet another vow from the government in Beijing that it would do more to accelerate economic growth. Such a trend would also interfere with predictions that China has essentially reached peak oil demand and the only direction for it from now on is down—even as Norway, the country with the highest per-capital EV ownership rate, sees its own oil demand plateau rather than decline as EVs top 80% of all new car sales.
While China may surprise in terms of demand growth, India won’t—it is already expected to turn into the biggest driver of global oil demand this year, accounting for a solid portion of the global total, at up to a quarter. While still a much smaller consumer of the commodity than China, India’s demand seems to be growing faster, with the U.S. Energy Information Administration seeing it add 330,000 bpd this year, up from some 220,000 bpd in 2024.
Elsewhere, demand for oil appears to be stable—so stable indeed that global inventory declined quite substantially last year. This is not something media report on as regularly as they report on Chinese demand developments, but it is nevertheless happening. While the International Energy Agency has been predicting an oil glut, the level of inventories has been declining much faster than the IEA had expected. Eventually, it might turn out there is no glut at all. With “preventative airstrikes” on Trump’s table of options for Iran, this could make for a really bullish year for oil indeed.
By Irina Slav for Oilprice.com
