The past year has been a whirlwind of geopolitical events: one crisis after another, pushing the XAUUSD higher. The Middle East, in particular, saw a series of conflicts that began with Israel's confrontation with Hamas, expanded to clashes with Hezbollah in Lebanon, and even involved attacks with Iran.
Against this backdrop, many expected oil prices to soar, but for most of the year, they trended downward, with occasional rises. This counter-intuitive behavior was due to two factors: oil supply was largely unaffected despite the unrest, and concerns about demand, especially from China, persisted.
Although the pandemic is long over, its economic aftermath persists, especially in China. The country continues to struggle to stimulate domestic demand and even faces deflationary risks. In December 2024, consumer price inflation in China fell to just 0.1% year-on-year, down from 0.2% in November.
Even the Chinese government's stimulus measures failed to change market sentiment. Oil prices rose at first but soon fell again. The postponement of production increases by OPEC+ did not help prices to rise either. It seemed that, without new catalysts, energy prices could continue to fall.
Things started to change in December. The turning point came when the Biden administration announced plans to impose tougher sanctions on the Russian energy sector. Weeks later, these sanctions materialized, imposing tighter restrictions on the country's producers, oil tankers, traders, and insurers.
Initially, prices experienced a correction, influenced by the "buy the rumor, sell the news" effect and market perceptions that the measures were less severe than anticipated. Nonetheless, oil prices ultimately climbed above $80, marking their highest level since early October, when Middle Eastern tensions peaked.
Looking ahead, Goldman Sachs forecasts that oil prices could rise further, potentially reaching $90. However, for this to happen, the incoming Trump administration may have to impose sanctions on Iran or authorize pre-emptive strikes against its oil or even nuclear facilities.
So, is oil destined to keep rising?
As always, there are two sides to the story. On the bearish side, Russia has historically managed to circumvent sanctions, which could prevent a significant drop in supply. Moreover, increased production from other suppliers could theoretically offset any shortfall in Russian oil.
If energy prices continue to rise, they could seriously challenge central banks' efforts to control inflation. Oil is a key input in almost every production chain, so higher prices tend to ripple through the economy. This could force the Federal Reserve to maintain or even raise interest rates.