Oil prices surge amid Russian and OPEC supply cuts, US crude stocks decline

Oil prices climbed on Wednesday as tightening supplies from Russia and OPEC members combined with a drop in US crude oil inventories. Market sources, referencing data from the American Petroleum Institute (API), highlighted these factors as key drivers for the price surge.

The Organization of the Petroleum Exporting Countries (OPEC) reported a drop in oil output for December, breaking a two-month streak of production increases. According to a Reuters survey, maintenance activities in the United Arab Emirates offset production gains from Nigeria and other OPEC members.[M1] 

Meanwhile, Russia's oil production in December averaged 8.971 million barrels per day, falling short of the country's target. Bloomberg, citing the Russian energy ministry, attributed the decline to reduced seaborne exports from western ports, which have continued to decrease since peaking in October 2024.

US data highlights demand growth

Adding to the bullish sentiment, API figures revealed a notable 4-million-barrel drop in US crude stocks last week. Although gasoline and distillate inventories rose, the overall decline in crude reserves reflects increasing demand.

Economic indicators in the US also bolstered oil prices. A surprise rise in job openings signaled expanding economic activity, which is expected to drive greater oil consumption.

Oil prices gain momentum

At 0954 GMT, Brent crude rose by 69 cents (0.90%) to $77.74 per barrel, while US West Texas Intermediate crude advanced 87 cents (1.17%) to $75.12 per barrel. Analysts suggest that a mix of weather-related demand, potential sanctions on Russia, and optimism for a rebound in Chinese oil consumption are sustaining the upward trend.

Harry Tchilinguirian, head of research at Onyx Capital Group, noted that reduced crude exports from Russia and favorable API data have fueled this price momentum. Similarly, Tamas Varga, an analyst at oil brokerage PVM, pointed to "sanguine market conditions" as oil prices continue their ascent.

Outlook: Prices may moderate in 2025

Despite the recent gains, analysts predict a moderation in oil prices for 2025. Non-OPEC production increases are expected to temper the market. BMI, a division of Fitch Group, maintains its forecast for Brent crude to average $76 per barrel in 2025, down from an average of $80 per barrel in 2024.

As global markets navigate shifting supply and demand dynamics, the oil industry remains poised for continued volatility. For now, tightening supplies and positive economic indicators suggest a strong start to 2025.

FAQs about the recent oil price surge

1. Why are oil prices rising now?

Oil prices are increasing due to tightening supplies from Russia and OPEC members, as well as a drop in US crude oil inventories. Economic growth indicators, such as a rise in US job openings, are also fueling demand.

2. How much did Brent crude and WTI crude rise?

As of 0954 GMT, Brent crude increased by 69 cents (0.90%) to $77.74 per barrel, while US West Texas Intermediate (WTI) crude rose by 87 cents (1.17%) to $75.12 per barrel.

3. What caused OPEC's oil output to decline?

OPEC's output declined in December due to maintenance activities in the United Arab Emirates, which offset production gains in Nigeria and other member countries.

4. How is Russia contributing to the supply drop?

Russia's oil production averaged 8.971 million barrels per day in December, which is below its target. This decline is linked to reduced seaborne exports from its western ports.

5. What role does US crude stock data play in oil prices?

The API reported a decline of about 4 million barrels in US crude inventories last week. This drop, despite increases in gasoline and distillate inventories, signals higher demand and supports rising oil prices.

6. How do economic factors influence oil prices?

Economic growth indicators, such as a rise in job openings in the US, suggest increased economic activity and energy consumption. This boosts demand for oil, contributing to higher prices.

7. Will oil prices continue to rise?

While prices are currently climbing, analysts expect them to moderate in 2025 due to increased production from non-OPEC countries. For example, Brent crude is forecasted to average $76 per barrel in 2025, down from $80 per barrel in 2024.

8. How could global factors, like sanctions on Russia, impact oil prices?

Potential sanctions on Russia, along with weather-related demand and a possible rebound in Chinese consumption, could keep oil prices elevated in the short term.

9. What is the significance of OPEC and Russia in the oil market?

OPEC and Russia are major oil producers, and any changes in their production levels or export strategies significantly affect global oil supply and prices.

10. How can I stay updated on oil price trends?

You can follow reputable financial news websites, market reports, and updates from organizations like OPEC, the US Energy Information Administration (EIA), and global economic indicators.