Oil prices recouped losses from earlier in the session on Tuesday even as the market seems to be running out of steam amid oversupply concerns in 2025.
Prices had climbed sharply over the first few trading sessions of 2025 on optimism over rising demand from China and a tighter Middle Eastern market.
Analysts with ING Group, said in a note:
While there has been some tightening in the physical market, fundamentals through 2025 are still set to be comfortable, which should cap the upside.
Oil balances show that supply is likely to outstrip demand this year with steep production increases in countries outside the Organization of the Petroleum Exporting Countries and allies.
At the time of writing, the price of West Texas Intermediate crude oil on the New York Mercantile Exchange was at $73.77 per barrel, up 0.3%.
Brent crude oil on the Intercontinental Exchange was at $76.64 per barrel, up 0.5% from the previous close.
Oversupply concerns
According to the International Energy Agency, the crude oil market is set to be oversupplied by 950,000 barrels per day in 2025.
Demand growth is expected to be muted this year with an increase of just over 1 million barrels per day, according to the IEA.
However, global supply is expected to rise by 1.9 million barrels per day in 2025, with 1.5 million barrels a day increase coming from the US, Guyana, Brazil, Argentina and Canada.
In such a scenario, there is very limited upside potential for crude oil this year, according to experts.
Moreover, OPEC and its allies are expected to increase their production from April, which could further weigh on sentiments and depress prices.
OPEC+ production
OPEC and its allies agreed in December to delay a planned increase in production from January due to weak market dynamics.
The cartel was supposed to roll back some of its voluntary production cuts in January and raise production by 180,000 barrels per day from this month.
However, weak demand in China and oversupply concerns prompted OPEC to extend the voluntary production cuts of 2.2 million barrels per day by another three months until the end of March.
This helped oil prices somewhat, which have fallen below $70 per barrel.
However, the IEA has said the market will still be oversupplied even with steep production cuts by the cartel.
For now, Brent prices have recovered and are trading above $76 per barrel. But, OPEC has a difficult choice to make in the coming months in terms of production increases.
Saudi Arabia raises selling prices
Saudi Arabia, the de-facto leader of OPEC, raised its official selling price for Arab Light exported to Asia for February.
The Kingdom raised prices by $0.60 per barrel on a month-on-month basis to $1.50 a barrel over the benchmarks, according to ING Group.
All grades into Asia saw increases ranging between $0.40 per barrel and $0.60 a barrel.
ING analysts said:
The increase comes after OPEC+ decided last month to extend supply cuts. In addition, the physical market in the Middle East has seen some strength more recently.
Also, the decision to raise oil prices reflects good demand for Middle Eastern crude grades.
Demand has risen for crude oil from the Middle East after reports have claimed that the west is planning more sanctions on Russia’s energy exports.
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