The energy composite includes WTI and Brent crude oil, gasoline, heating oil, natural gas, and ethanol. While the composite does not include coal, it remains a critical energy commodity producing power in China and India, the world’s most populous countries.
The energy composite rose 8.65% in Q4 and was 4.89% higher in 2024. Oil, oil products, natural gas, and ethanol prices rose in Q4 and turned in mixed results in 2024, while coal for delivery in Rotterdam, the Netherlands, declined in Q4 but moved to the upside in 2024.
Crude oil rallies in Q4- Mostly steady prices in 2024
The nearby NYMEX WTI and Brent North Sea crude oil futures moved 5.21% and 4.10% higher, respectively, in Q4 2024.
The monthly NYMEX WTI crude oil futures chart shows the nearby contract edged 0.10% higher in 2024, settling at $71.72 per barrel on December 31, 2024.
The continuous Brent crude oil futures contract declined 3.17% in 2024, settling at $74.64 per barrel at the end of December.
Brent and WTI crude oil futures prices were higher in January 2025.
Oil products- Higher in Q4, lower in 2024
Refineries process crude oil into petroleum products, including gasoline and distillates. The CME’s NYMEX division trades futures contracts in gasoline and heating oil. The heating oil contract is a proxy for other distillate products, including diesel and jet fuels.
In Q4, gasoline futures moved 3.83% higher, and heating oil futures rallied 7.52%. The moves over the last three months of 2024 reflected seasonality, which supports heating oil during winter and weighs on gasoline during the offseason for demand. In 2024, gasoline futures moved 4.61% lower, with the heating oil futures declining 8.40%. Gasoline and heating oil crack spreads, reflecting the processing margins for refining crude oil into the products, were lower in 2024 as the products underperformed the raw energy commodity. In Q4, gasoline crack spreads edged lower, while the distillate crack spread moved to the upside.
Nearby gasoline futures settled 2024 at $2.0092 per gallon wholesale, and heating oil futures ended the year at $2.3164 per gallon wholesale. Gasoline and heating oil prices were higher in January 2025.
Natural gas leads on the upside
NYMEX natural gas futures posted a 24.29% seasonal rally in Q4 as the energy commodity moved into the peak demand season.
The weekly continuous contract chart highlights the bullish price action that took natural gas futures 44.51% higher in 2024. The nearby futures settled last year at $3.633 per MMBtu. Natural gas futures were higher in January, trading over the $4 per MMBtu level.
Ethanol and coal were higher in 2024 but a mixed bag in Q4
Biofuel futures moved to the upside in Q4, following crude oil and oil products. Nearby Chicago ethanol swaps moved 6.96% higher over the last three months of 2024 and were 0.90% higher for the year ending on December 31, 2024. The nearby ethanol futures settled at $1.69 per gallon wholesale at the end of last year. The U.S. mandates an ethanol blend with gasoline. The primary ingredient in U.S. ethanol is corn. In Brazil, refiners process sugarcane into biofuel. Lower corn and sugar prices in 2024 weighed on ethanol prices, which were at a discount to gasoline prices.
Coal, the traditional energy commodity that has become a four-letter word for environmentalists, moved lower in Q4. Coal futures for delivery in Rotterdam, the Netherlands, fell 5.23% in Q4 but was 4.48% higher in 2024. The nearby Rotterdam coal futures price settled at $113.15 per metric ton on December 31, 2024. Coal was lower and ethanol prices higher in January 2025.
The change in U.S. energy policy could cause significant volatility in the energy sector in 2025
On January 20, 2025, U.S. energy policy did an about-face. Under the Biden administration, energy policy supported alternative and renewable fuels while inhibiting fossil fuels. The Trump administration has pledged to increase U.S. output to lower prices, fight inflationary pressures, reduce dependence on foreign sources, and increase export revenues.
The U.S. consumes over 20 million crude oil barrels daily and has been producing under 14 million barrels daily. Over the coming months and years, increased output could eventually weigh on traditional energy commodity prices. However, like in most commodities, China is a significant consumer. If the Chinese economy rebounds, global energy demand could increase. Moreover, high oil prices in 2022 caused the previous administration to sell unprecedented reserves from the U.S. Strategic Petroleum Reserve. As of January 3, the U.S. SPR stood at the 393.8 million barrel level, 240 million barrels under the level when the Biden administration took office in January 2021. Filling the SPR over the coming months and years could keep a bid under oil prices. Therefore, the oil market faces bullish and bearish factors in early 2025.
Meanwhile, natural gas prices have been in a bullish trend over the past months. While the energy commodity is now in the heart of the peak demand season, natural gas exports could reduce U.S. stocks, supporting prices. Over the coming months and years, ethanol and coal prices should follow oil and gas prices. China and India remain significant coal-consuming countries.
Traditional energy commodities power the world. While climate change remains an issue, U.S. energy policy has shifted back to support for the oil and gas markets in early 2025. Expect lots of volatility in the energy commodities over the coming months as the world adjusts to changes. Meanwhile, geopolitical turmoil in the Middle East can cause periodic upside price action if hostilities continue or escalate.
