Geopolitical Tensions and OPEC+ Decisions Shape Oil Market for 2025

The recent Israel-Hezbollah ceasefire is only one piece of the complex geopolitical landscape that is influencing oil prices as we head into 2025. David Fyfe, chief economist at Argus, told CNBC that while the ceasefire has removed one strand of uncertainty, the broader picture remains filled with uncertainties, including the Trump Administration's sanctions against Iran and the ongoing Russia-Ukraine conflict.

As Fyfe notes, the current geopolitical tensions are both supporting crude prices and raising concerns about the global economy, which could weigh down on oil prices. This "dynamic equilibrium" presents challenges for OPEC+ as it navigates the complexities of oil supply and demand.

In particular, OPEC+ must carefully assess its production decisions, with Argus forecasting 1 million barrels per day (bpd) of global oil demand growth in 2025. However, this growth will likely be outpaced by non-OPEC+ supply growth, especially from the U.S., Brazil, and Guyana. Consequently, OPEC+ may need to defer easing production cuts into 2025 to balance the market.

OPEC+ is set to meet on December 5, a delay from its original December 1 date, to discuss production plans. Speculation suggests that weak fundamentals might prompt the group to delay the planned output increase set for January 2025.

In the near term, OPEC+ cuts and improved compliance with quotas are providing some support to oil prices, with Goldman Sachs predicting that the cuts will be extended and the easing of curbs could begin gradually in April 2025.

Meanwhile, Libya has achieved a major milestone in its oil production, with the National Oil Corporation (NOC) reporting a new high of 1.59 million barrels per day. This boost comes after a recovery from a political dispute that had temporarily halted production earlier in the year. Despite political tensions that continue to pose risks, the country's oil sector is showing signs of stabilization, aided by the return of major players like Eni and BP.

As global oil prices remain steady, with Brent crude at $73.04 per barrel and WTI at $68.58, Libya's recovery marks a bright spot in an otherwise uncertain market.