It is far from being set in stone that factors that pushed the Nasdaq Composite Index above 20,000 points and aided oil to rally more than $1.5/bbl yesterday will provide long-term support, but further gains in the immediate future cannot be ruled out. US consumer prices increased as anticipated—core CPI rose 3.3% on the year, and the headline figure was up 2.7%. The CME FedWatch tool now puts a 99% probability of a 0.25% rate cut next week.

When stocks are climbing, oil usually follows. Additional nudges came from the US and the EU. In just over a month Donald Trump will move into the White House and the outgoing administration saw it timely to explore ways to restrict Russian oil exports further. The EU went a step further and agreed on the 15th package of sanctions on Russia targeting the country’s shadow fleet, the use of which has successfully circumvented existing boycotts. Whether the timing is a coincidence, or the two sides have liaised is not clear but more than 5 mbpd is at stake. The latest attempts to constrain Russia and its hard-core buyers to transact raises two salient questions: can they be effectively enforced to meaningfully reduce the amount of available oil and lead to supply shortage and keeping in mind Donald Trump’s pledge to end the Ukrainian war in “24 hours” will they remain in place after January 20?

These are the latest ‘known unknowns’ and against them are the hard facts. Major US product inventories rose by a combined 8.3 million bbls whilst crude stocks drew 1.4 million bbls. Domestic production leapt another 118,000 bpd week-on-week and reached a staggering 13.631 mbpd. No wonder the US feels comfortable imposing stricter sanctions on Russian oil trade. OPEC, as discussed below, revised demand estimates lower. For now, however, new Russian sanctions, coupled with the OPEC+ delay to increase supply, have overtaken demand considerations as the major price driver and might provide additional support if they, in fact, explicitly lead to falling exports.

Tangible Alignment

The hatchet will unlikely be buried and the contradicting views on the health of the oil market will plausibly prevail. Yet, one cannot help but notice that the chasm in demand estimates between OPEC and the IEA is getting narrower. Of course, this view might have to be altered after the latest update from the energy watchdog of the OECD countries is released this morning. Still, it is impossible to disregard the downgrade of global consumption in the latest OPEC Monthly Oil Market Report published yesterday.

Before taking a deep dive into the numbers it is a useful exercise to encapsulate OPEC’s view on the world economy and the oil balance expressed in the Feature Article of the latest edition of the report. The research team at OPEC remains sanguine on economic prospects and expects the global economy to expand by 3.1% in 2024 and 3% in 2025. It will be predominantly led by the non-OECD part of the world (4.2% and 4.1%) and particularly by China (4.9% and 4.7%) and India (6.8% and 6.3%). It is noteworthy that Chinese growth projections are below the official and declared goal of 5%. Still, OPEC believes the fiscal and monetary stimuli announced recently will go a long way to put the world’s second-biggest economy on a credibly healthy upward trajectory.

Solid growth warrants buoyant global oil demand, which will register a slower growth rate in 2025 than in 2024, but it will still be higher than the increase in non-DoC supply. It entails rising demand for the oil produced by the alliance. This year, the world needs 103.83 mbpd of oil, 1.63 mbpd more than in 2023. The pace of expansion will slow to 1.45 mbpd in 2025 reaching 105.28 mbpd in absolute term. Global oil demand keeps reaching new historical peaks.

Supply from producers outside the group is set to climb by 1.33 mbpd in 2024 and by 1.10 mbpd in 2025, to 53.13 mbpd and 54.23 mbpd, respectively. When adding the ‘DoC other liquid’ category to the formula, one will find that the call on DoC oil will climb from 42.20 mbpd in 2023 to 42.40 mbpd this year and to 42.68 mbpd next. Considering that combined output from the 22 countries, including those with no output restrictions, is set to stand at 40.8 mbpd this year, according to independent consultants and tanker trackers, OPEC believes that global and OECD inventories will have declined significantly in 2024 (the latest calculation suggests a depletion rate of 1.60 mbpd) and the trend will continue in 2025. In light of these figures, the recent decision to delay the planned unwinding of voluntary cuts is perplexing because adding the originally planned 1.1 mbpd of oil to the market on average next year would still not lead to supply excess.

The numbers are ostensibly encouraging for ardent bulls and concerning for those with bearish propensity. The latter group, however, appears admirably unconcerned and if we take a look back at OPEC’s 2025 demand view throughout the year, the reason becomes conspicuous. It was in January when projections for 2025 were produced for the first time. Back then global oil demand was seen at 106.20 mbpd. It rose to 106.33 mbpd by April but has perennially been revised down in the last 8 months – by more than 1 mbpd, to 105.28 mbpd. In April, OPEC put the 2025 global oil demand prediction 2.03 mbpd higher than the IEA. By last month the difference narrowed to 1.75 mbpd and if the IEA cuts its forecast by less than the 270,000 bpd downward revision produced by OPEC this yawning gap will become ever so slimmer. Next year’s growth rate of 1.88 mbpd envisaged in April has been reduced to 1.54 mbpd.

The difference in demand prognosis is still significant, notwithstanding the constant downward revision by OPEC. However, the views are more aligned now than at any time this year. The undeniable fact is that OPEC’s downward revisions in demand is swifter than in non-Doc supply. As a result, the 2025 call for the alliance’s oil has retreated by 550,00 bpd in the last two months alone. If prices are the product of actual and predicted inventories, then even the advocates of the accuracy of the OPEC forecasts would agree that under these circumstances a rally above the mid-October price levels is unjustified and dubious. And back then Brent was trading around $78/bbl.

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