Macroeconomic issues will come back to the fore in due course and will have a palpable impact on oil prices again. These days, however, US retail sales or jobless claims are being confined to the back of traders’ minds (they were encouraging, by the way) and so are upbeat Chinese GDP figures (+5.4% for 4Q 2024). Attention is still firmly on geopolitical issues. After all, there are about 5 mbpd of Russian oil exports at stake. The rally from last Friday to $82.63/bbl basis Brent, triggered by fresh US sanctions on Russia, and the subsequent widening of crude oil backwardation was a natural reaction from physical and financial traders alike, supported by the closure of the Colonial pipeline, (which is planned to restart today) and by the anticipated freezing temperatures early next week in the central and the eastern parts of the US.

Yet, a healthy correction was observed yesterday. It was partly the function of timely pre-weekend profit-taking ahead of Donald Trump's inauguration on Monday when US markets are closed. Further temptation arrived from the Near East, where Houthi rebels insinuated halting attacks in the Red Sea should the very fragile ceasefire between Israel and Hamas hold up. This, in turn, might lead to a fully operational Suez Canal and a fall in freight rates, which could mitigate the impact of the Russian sanctions on the cost of shipping.

Will it happen? Our sceptical selves would say no. The Israeli Prime Minister is under domestic pressure from the far right to disown the deal until Hamas is utterly obliterated. Without its support, Benjamin Netanyahu would lead a minority government. And even if the truce stands, Houthi rebels are the last bastion of Iranian proxies that Israel will aim to destroy, therefore protracted calm around this crucial trade artery appears doubtful. Whether this view proves accurate is equally dubious. What is certain is that every single headline about Red Sea shipping and Russian sanctions will exacerbate the already existing hectic and vicious trading conditions, whilst investors pin their hopes on the impending Trump presidency to provide much-needed clarity.

Mind the Gap

The first set of data of the new year on the global oil balance did not hold particular surprises. There is a broad agreement on the past but prognosis on the future widely differs. It appears that collecting historical data is significantly simpler than envision future one. Looking back at the first half of the year, a difference of 188 million bbls in predicting the end of 2024 OECD stock levels becomes visible. The IEA projected at 2.735 billion bbls last April versus OPEC’s view of 2.547 billion bbls. The latest updates put them at 2.749 billion bbls and 2.770 billion bbls for November.

Looking ahead, there are similarities in forecasts as well as disagreements. All three agencies believe that global oil demand and supply from producers outside the OPEC+ group will increase year-on-year in 2025. The consumption of oil, therefore, will hit yet another annual peak despite several major consuming regions reporting plateauing demand for road transportation fuel. There is, nonetheless, a lack of consensus on the absolute figures. The range is from 103.95 mbpd to 105.18 mbpd. This difference of 1.23 mbpd is wider than the 930,000 bpd recorded for 2024 but the fact that consumption keeps rising is a sanguine development for those with bullish disposition. The supply side of the oil equation shows comparable characteristics. Combined non-DoC oil supply and DoC ‘other liquids’ production also increase in 2025. Here the gamut is 61.50 mbpd-62.88 mbpd. 

Deviating views can be found in annual growth rates, both on the demand and the supply side. To begin with, the EIA and the IEA foresee non-DoC supply growing faster than oil demand – in the case of the former by 220,000 bpd, whilst the latter puts this surplus at 420,000 bpd. In other words, this is how much less DoC oil will be demanded this year. OPEC, not entirely unexpectedly, takes the opposing view. It sees consumption growing by 1.47 mbpd against an advance of non-DoC + DoC ‘other liquids’ supply of 1.15 mbpd leading to an actual increase of 330,000 bpd in the call for the oil of the producer alliance. On a side note, it is worthwhile pointing out that, using OPEC data, 2025 Chinese demand growth will be 300,000 bpd or 20% of the total. It compares with over 60% pre-Covid. Clearly, the world’s second-biggest economy is losing its main role as the beating heart of global growth. The US and Canada will be responsible for 700,000 bpd or 64% of the total non-DoC supply growth.
Because of these non-aligned views on growth rates OPEC+ envisages an increase in the demand for their oil in 2025 but the other two foresee declines. There is a chasm of 1.51 mbpd between the highest and lowest estimates on this call. Hence the differing views on OECD stocks. OPEC expects an annual depletion against builds seen by the EIA and the IEA. Of course, these predictions can be altered considerably by the recently announced US sanctions against Russia’s energy sector. It is the definition of a ‘black swan event’ as it was unforeseen, and its impact simply cannot be predicted. The IEA cut 1Q 2025 OPEC+ supply estimate by 200,000 bpd. Assuming a normalization of the situation, either because of sanction evasion or a potential peace deal between Ukraine and Russia, one might conclude that for 2025 the risk is skewed to the downside. There are two arguments for this statement. Firstly, last year it was OPEC that gradually revised upwards its OECD stock forecasts and the same is anticipated for this year. Secondly, the spare capacity of over 5 mbpd at the disposal of OPEC+ could mitigate the impact of actual or perceived supply disruptions.

Peeking into 2026 the EIA and OPEC have shared their views with us. Global oil consumption is set to increase further although the difference remains meaningful. The EIA puts it at 105.14 mbpd, some 1.44 mbpd lower than OPEC’s 106.60 mbpd. Non-DoC supply is seen expanding slower than demand in 2026 in both cases but whether the increase in DoC call will be neutralized by rising output from the group remains to be seen. The upbeat demand views are based on optimistic global economic growth, which, considering Chinese hardship and US tariff threats, could well be liable for considerable downside adjustments. Even a small change in assumption could lead to a significant change in conclusion.
 

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