The global oil balance faced several headwinds in 2024, including slower-than-normal demand growth, OPEC+ members overproducing their quotas, and rising geopolitical risk. Despite market data suggesting the market was heading toward oversupply under OPEC guidance for much of the year, the market’s perpetual optimism for stronger demand growth introduced volatility into benchmark oil prices, with daily settlements for the year reporting an over $21/bbl spread. The 2025 oil market is expected to remain equally volatile, but there are a few key areas of focus for the year: the pace of demand growth, OPEC+ market management, and U.S. policy shifts.
Demand & China
In 2024, global crude demand increased by less than 1 MMb/d for the first time since 2019, driven by weaker Chinese demand. For much of the last decade, China has been the key contributor to strong global demand growth, but the slow reopening post-COVID, rising real estate market risk, rising interest rates, and reduced international trade challenged the country’s ability to post economic growth in line with pre-2020 levels. As a result of this reduced economic growth, the country’s oil demand growth also slowed. For 2025, the market will be watching to see if Chinese economic policy and additional rounds of stimulus can reignite demand and push global oil demand back to historical average levels of 1.2 MMb/d.
OPEC
As for OPEC, the group communicated intentions to continue managing the market through 2026 at their December 5th Ministerial Meeting, but this could be hindered by slower demand growth and/or member compliance with production quotas. Through YE24, the group had planned to start unwinding the 2.2 MMb/d in voluntary production cuts set in April 2024, but the market imbalance was not supportive enough to accommodate this guidance since demand underperformed their forecasts and several key members overproduced their quotas. This resulted in OPEC+ delaying plans to increase production on three separate occasions. Should demand underperform again in 2025, the organization could face a repeat of 2024, but this may cause the group to enforce quota compliance more strictly.
Shifting U.S. Policy
With the second Trump administration beginning in January 2025, U.S. energy policy will be one of the biggest oil market factors to watch in 2025. President-elect Trump has indicated he intends to reinvigorate domestic oil and gas drilling and to pick up where he left off in terms of international relations. Should this manifest over the next year, the administration may reinforce sanctions on Iran and Venezuela, impose new tariffs on Canada and Mexico, reform energy permitting processes, allow drilling on federal lands, and encourage energy infrastructure development. While the specifics of the forthcoming policy shifts remain to be seen, the first Trump administration shows an added layer of volatility in benchmark pricing can be expected.
Takeaways
BTU Analytics currently expects OPEC+ market management along with a return to normal demand growth to be supportive of oil prices and U.S. drilling for 2025. However, the uncertainty around China’s economy and policy shifts under President-elect Trump do introduce a healthy amount of risk to both supply and demand. The key points of focus for 2025 will be how these two risks play out and OPEC’s willingness to manage around them.
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