The current grim view is underpinned by the lacklustre response to a smorgasbord of seemingly price-supportive developments. The weekly US oil statistics recorded drawdowns across the board. The 7 million bbls decline in commercial inventories indicates that OECD stocks might not build considerably in the last quarter of the year preventing prices from nosediving.  This drawdown was the result of falls in the major categories: 2.2 million bbls in crude oil and gasoline stockpiles and 3.5 million bbls in nationwide distillate inventories. These are powerful numbers, yet, what we saw was a 28 cents/bbl rise in the price of WTI, RBOB advanced 65 points with Heat ending the day 198 points stronger.

The reported death of the mastermind of last year’s heinous attack on Israel, Yahya Sinwar could easily lead to further escalation in the ongoing conflict with Iran playing an ever-increasing role. Although the US would like to believe that the killing of the leader is an opportunity to resume serious and meaningful peace talks, it seems more like a wishful thinking than a realistic alternative. The Israeli prime minister promised to continue its war until all hostages are released. The militant group, Hezbollah, also promised to intensify its assaults against Israel, not exactly a sanguine sign of attempts to negotiate peace.

Financial data was deemed supportive. The ECB rate cut indicates the inflation is under control, US stocks remained steady as retail sales increased and jobless claims unexpectedly fell. This morning the market takes comfort the slightly better Chinese 3Q GDP reading. The country’s economy grew 4.6% in the July-September period, slightly better than anticipated but considerably below the declared 5% objective. The 5.4% advance in industrial output helped Chinese equities to regain a tiny portion of the recently lost ground but the sixth successive fall in refinery output serves as a reminder that the economy is far from being on the mend. All things that happened yesterday and overnight considered, an upside correction cannot be ruled out, but this market is unlikely to scale previous summits.

Not Looking Encouraging At All

There are wide differences, yet perspectives are more aligned than the dry numbers suggest. Global oil demand and oil demand growth estimates vary significantly because views on the speed of the transition from fossil fuel to renewable energy deviate. This chasm in opinions, which frequently plays out in public, however, is nowhere to be seen when one looks at the direction of travel. After the updated reports on supply-demand balance were released in the last few days, it became discernible that economic developments have justified collective downward revisions in global demand forecasts.

These downgrades were the underlying narrative. The three main forecasters, the EIA, OPEC and the IEA, all predict falling demand for oil globally compared to previous projections – both for 2024 and 2025. OPEC, for example, saw global oil demand for this year at 104.45 mbpd and 106.33 mbpd for 2025 five months ago. In the latest release, these figures have been amended downwards by 320,000 bpd and 550,000 bpd respectively. The same trend is observed with the IEA. The common view between the IEA and the EIA is that China is responsible for the bleaker outlook. Its economic troubles are well-publicized, and it is manifested in growth forecasts. As the IEA points out, the second-biggest economy in the world was responsible for 70% of the demand growth last year. This share plummeted to 20% in 2024. The EIA emphasizes the continued decline in the country’s crude oil imports and refinery runs. Intriguingly, but perhaps not surprisingly, OPEC remains upbeat on Chinese demand prospects and stresses that downward revisions are the function of actual data received and ‘slightly lower expectations for some regions’.

Supply from producers outside the alliance was left unchanged for both years with the EIA revising its outlook for the last quarter of the year up by 340,000 bpd. During the May-October period estimates have risen slightly and whilst these changes are far from being dramatic, when coupled with deteriorating views on consumption, the negative impact on the OPEC+ call is almost compounded. And of course, one must not forget about the pragmatic adjustments seemingly taking place within the OPEC+ group. As Saudi Arabia has reportedly given up on its informal price target and the group’s market share might take priority, adding extra barrels, starting with the 2.2 mbpd voluntary cuts from December onwards, will make the oil balance even looser. The supply picture could get considerably tighter in case of disruptions in the Middle East. Yet, it needs to be kept in mind that unless those with spare capacity are involved and affected, any shortage is expected to be brief. In the view of the IEA, the effective supply cushion is around 5 mbpd and global stocks will provide further mitigation. And, fulfilling one of its mandates, ‘the IEA stands ready to act if necessary.

The key takeaway from the latest set of data on the oil balance is that supply will exceed demand in 2025 or, depending on the source, its deficit will be less conspicuous than predicted before. It will logically lead to inflating stocks worldwide and in the OECD region, or, as OPEC sees it, a slower depletion of oil inventories in 2025. The current quarter might be the last when stockpiles will draw as manifested in the previous few weekly EIA statistics on US oil inventories. Commercial inventories the world’s most salient demand centre account for around 40% of OECD stocks and have been on the descent in the past four weeks. For next year, however, they should start building again capping any attempt to push prices north. Using the inverse relationship (if it still exists) between OECD stocks as projected by OPEC and the price of Brent there are two conclusions to be drawn after the constant downside revisions in global oil demand: the first one is that next year’s price is to be $7/bbl lower than the September oil balance insinuated. The second one is ambiguous. Based on OPEC’s forecast, which shows stubborn stock draws throughout 2025 the price of oil should average some $15 higher than in 2024 (the current year-to-date Brent price is $81.53/bbl.) If the IEA proves accurate, the year-on-year price change is seen the same but to the downside. The current curve suggests that the market is inclined to side with the latter.
 

Overnight Pricing