Oil prices edge up but set for second straight annual loss

HOUSTON (Reuters) -Oil prices rose slightly on Tuesday but were headed for their second straight annual loss as the post-pandemic demand recovery stalled and China’s economy struggled while the U.S. and other non-OPEC producers pumped more crude into a well-supplied global market.

Brent crude futures rose 70 cents, or 0.95%, to $74.69 a barrel as of 12:48 p.m. EST (1748 GMT). U.S. West Texas Intermediate (WTI) crude gained 79 cents, or 1.11%, to $71.78 a barrel.

The Brent benchmark was down around 3.1% from its final 2023 closing price of $77.04, while WTI was roughly flat with last year’s final settlement.

In September, Brent futures closed below $70 a barrel for the first time since December 2021, and this year broadly traded under highs seen in the past few years as the post-pandemic demand rebound and price shocks of Russia’s 2022 invasion of Ukraine began to fade.

Oil will likely trade around $70 a barrel in 2025 on weak Chinese demand and rising global supplies, offsetting OPEC -led efforts to shore up the market, a Reuters monthly poll showed on Tuesday.

A weaker demand outlook in China in particular forced both the Organisation of the Petroleum Exporting Countries and the International Energy Agency to cut their oil demand growth expectations for 2024 and 2025.

The International Energy Agency (IEA) sees the oil market entering 2025 in surplus, even after OPEC and its allies delayed their plan to start raising output until April 2025 against a backdrop of falling prices.

U.S. oil production rose 259,000 barrels per day to a record high of 13.46 million bpd in October, as demand surged to the highest levels since the pandemic, data from the U.S. Energy Information Administration (EIA) showed on Tuesday.

Output is set to rise to a new record of 13.52 million bpd next year, the EIA said.

ECONOMIC, REGULATORY OUTLOOK

Investors will be watching the Federal Reserve’s rate-cut outlook for 2025 after central-bank policymakers this month projected a slower path due to stubbornly high inflation.

Lower interest rates generally spur economic growth, which feeds energy demand.

Some analysts still believe supply could tighten next year depending on President-elect Trump’s policies, including those on sanctions. He has called for an immediate ceasefire in the Russia-Ukraine war, and he could re-impose a so-called maximum pressure policy towards Iran, which could have major implications for oil markets.

“With the possibility of tighter sanctions on Iranian oil with Trump coming in next month, we are looking at a much tighter oil market going into the new year,” said Phil Flynn, a senior analyst for Price Futures Group, also citing firming Indian demand and recent stronger Chinese manufacturing data.

China’s manufacturing activity expanded for a third-straight month in December, though at a slower pace, suggesting a blitz of fresh stimulus is helping to support the world’s second-largest economy.

Buoying prices on Tuesday, the U.S. military said it carried out strikes against Houthi targets in Sanaa and coastal locations in Yemen on Monday and Tuesday.

The Iran-backed militant group has been attacking commercial shipping in the Red Sea for more than a year in solidarity with Palestinians amid Israel’s year-long war in Gaza, threatening global oil flows.

(Reporting by Georgina McCartney in Houston, Robert Harvey in London and Sudarshan Varadhan in Singapore; Editing by Susan Fenton, Ros Russell, Rod Nickel and David Gregorio)