Oil Markets Show Signs of Resilience and Retreat as 2025 Gets Underway 

In pre-modern times, communities relied on mystical tools to locate underground minerals. With the way things are going today, a dowsing rod may be as good as any other tool for someone trying to figure out what’s going on with the oil market. 

West Texas Intermediate fell 1.8% to below $79 late Thursday, a day after shooting to its highest level since August. International benchmark Brent Crude slipped 0.9% after earlier topping $82 in another five-month high. 

The retreats came as markets digested mixed signals about what might happen to Russian oil as US President-elect Donald Trump seeks to end the war in Ukraine. But the flirtations with multi-month highs have also come amid conditions — Jack Frost’s idea of paradise weather and festering geopolitical tensions — that would support gains. So far, those have kept the prospect of a bearish oil market at bay in 2025.

Quarrels and Barrels

If you live in one, you’ll know that several American states and European cities are experiencing intense winter weather courtesy of the polar vortex. For obvious reasons — people turn up the heat when it’s cold — falling temperatures often mean climbing oil prices. And when lower temperatures show up in unusual places like Texas, which is on the verge of its second cold snap in as many weeks, production and refinery operations can also slow down, adding to the price of a barrel.

The International Energy Agency issued a warning Wednesday that there will be a smaller oil surplus this year, cutting its 2025 projection from 950,000 barrels a day to 725,000 barrels a day, and Citigroup and Morgan Stanley have raised their oil price forecasts. But when weather patterns return to normal, Standard Chartered analysts say the market will still have strength:

• For one, OPEC+ has mostly kept to its target quotas while non-OPEC supply has grown more slowly than expected, the bank said. OPEC+ decided last month to delay an output increase from this month until April.
• Russia was hit with enhanced US energy sanctions last week, which Standard Chartered said will triple the number of directly sanctioned Russian crude tankers and impact some 900,000 barrels per day. Citing maritime tracking data, Reuters reported earlier this week that 65 tankers had already dropped anchor, suggesting they had paused activities.

Being Diplomatic: Scott Bessent, whom President-elect Donald Trump has nominated for Treasury Secretary, told the US Senate on Thursday that he’s willing to take sanctions on Russia even further, which would in turn boost prices even higher. On the other hand, Bloomberg reported that some of Trump’s advisers said they are considering “good-faith measures” that would offer relief to Russian oil producers if the Kremlin agreed to a diplomatic accord with Ukraine, where President Vladimir Putin ordered a full-scale invasion in 2022.