FILE PHOTO: A 3D-printed oil pump jack is seen in front of displayed OPEC logo in this illustration picture. REUTERS/Dado Ruvic
OPEC and its allies have postponed the easing of output cuts for another quarter, but that may do little to offset the impact of rising production outside the bloc and subdued demand at key consuming centers—factors that could prompt the oil market to start 2025 on a subdued note.
The gradual rollback of some 2.2 million b/d of voluntary curbs that was set to begin in January will now be implemented from April, but with nearly 1 million b/d of supply growth set to come from non-OPEC producers at a time when there are lingering doubts on China's growth, the market remains largely unexcited about the latest OPEC+ move.
In early December, OPEC+ said that Saudi Arabia, Russia, Iraq, UAE, Kuwait, Kazakhstan, Algeria, and Oman would extend 2.2 million b/d voluntary adjustments until end-March 2025, with the phase-out period to be carried out on a monthly basis until September 2026.
S&P Global Commodity Insights expects the 2.2 million b/d in cuts to remain in place for all of 2025 and sees OPEC+’s decision to postpone output increases until the end of March 2025 as neutral for global crude and refined product prices.
This third postponement of planned output increases since June suggests that OPEC+ views present crude prices around $70-$72/b as too low to raise production.
Even the UAE -- the most vocal within the group, calling for more production and earlier secured a 300,000 b/d hike to its quota that was also to begin in January -- agreed to delay phasing in that increase until the second quarter of next year.
Going by the latest developments, Commodity Insights believes that market fundamentals see oil supply growth outpacing demand in 2025 -- even if OPEC+ keeps production levels largely unchanged.
Non-OPEC+ crude oil and condensate growth in 2025 is expected at 1 million b/d, with the bulk of that growth expected to come from the US, Brazil, Canada, West Africa and Guyana. As a result, global oil production growth of 1.3 million b/d in 2025 will be higher than the 650,000-b/d increase in crude demand. This would mean relatively higher crude oil inventories in the first half of 2025 as refinery runs are set to go into a seasonal decline from early 2025.
However, on a total liquids basis, Commodity Insights estimates that 2025 world demand will increase by 1.4 million b/d, up from the 1 million b/d increase in 2024. The difference between crude oil demand growth and liquids demand growth reflects demand gains for gas-based liquid feedstocks and other non-crude liquids, as well as a drop in the direct use of crude oil.
Platts Dated Brent is expected to average $81/b for 2024, and in 2025, prices are expected to moderate to the lower $70s/b. The imbalance is forecast to continue beyond next year, further easing Platts Dated Brent to below $70/b in 2026.
Trump and implications for Asia
Donald Trump was decisively elected as the US president on Nov. 5. Trump promoted some policies in the 2024 campaign, such as deregulation, support for fossil fuels and raising tariffs on imports.
A second Trump administration might focus on increasing US oil production by rolling back environmental regulations and expanding offshore and federal land leasing opportunities. Growing US crude production has posed a significant challenge for OPEC+ in recent years, exerting downward pressure on prices, threatening the bloc's market share and prompting massive output cuts.
Increased US production and higher output in other non-OPEC+ countries, such as Brazil, Guyana and Canada, have nearly nullified the impact of OPEC+ cuts in 2024.
As Trump prepares to take office for a second term, Asian oil buyers are set to witness significantly more opportunities to import attractively priced crude from the US, as production in the country grows rapidly while competition with OPEC suppliers intensifies.
However, changes in Washington's policies on Iran, Russia and Venezuela, as well as China could alter the region's overall oil inflows.
Exports of US crude grades averaged 3.85 million b/d over January-October, largely unchanged from the previous year, according to Commodity Insights data.
But exports to Asia during the period fell about 88,000 b/d, or 5.7%, on the year, as China's imports of US crude oil plummeted to 155,000 b/d, from 305,000 b/d in 2023. The fall was partially offset by increased US crude exports to South Korea, averaging 474,000 b/d in the 10-month period, up 62,000 b/d on the year, due to the country's crude diversification strategy. US exports to India averaged 161,000 b/d in the first 10 months of the year, up 22,000 b/d on the year.
A key area of divergence between Trump and Joe Biden could be their sanctions policies, which could affect crude output in OPEC+ producers Russia, Iran and Venezuela. After falling during the first Trump administration, production in Iran and Venezuela has recovered under Biden, as the focus of sanctions shifted to Russia.
The China factor
Oil markets will be watching China's oil market from two different angles -- first, whether the economic slowdown and the influx of electric vehicles can keep a lid on domestic demand, and second, the impact on oil inflows from a potential trade war in the Trump era.
There are fears that Trump could limit China's energy trade with the US, potentially providing other major regional buyers of WTI Midland crude, including South Korea, Japan, Taiwan and Thailand, a bigger opportunity to procure additional spot cargoes of light sweet US crudes.
Commodity Insights expects China's oil demand to grow by 176,000 b/d and 309,000 b/d on the year in 2024 and 2025, respectively. The demand increase for 2024 is expected to be supported by LPG and jet fuel. In 2025, the rise in demand for transportation fuels is expected to be limited, with annual growth primarily coming from demand for chemical feedstocks.
China's crude runs are set to fall by 402,000 b/d in 2024, a stark contrast from an increase of 1.2 million b/d in 2023.
New refining capacity growth in China is set to decline, while downstream demand growth is expected to slow due to the decelerating economy, transportation fuel substitutions and widespread delays in chemical projects.
The good news is that China's 2024 GDP forecast remains at 4.9% -- close to its 5% target -- supported by an enhanced stimulus package.
However, potential US tariff hikes pose a significant downside risk for all markets, including oil.
Sambit Mohanty is Asia Energy Editor at S&P Global Commodity Insights, leading coverage for Platts Oilgram News for the Asia-Pacific region. Sambit is based in Singapore and has more than 25 years of experience as a senior journalist and editor analyzing commodities and energy trends in the region. He holds a Master’s Degree in Applied Economics.
