President-elect Donald Trump’s friendly oil policies could boost U.S. crude production beyond the currently estimated growth.
However, Trump’s vow to “drill, baby, drill” and the promised deregulation in the oil and gas industry with faster permitting could hit a wall of continuously growing global supply. This higher production from non-OPEC+ producers is set to tilt the market into a large surplus in 2025, even if OPEC+ keeps its current commitment to begin bringing back supply from April, analysts and forecasters say.
At the current state of affairs, supply is expected to exceed demand by around 1 million barrels per day (bpd) next year. But market observers know that geopolitics will surely play a role in oil prices going forward. And they concur that the biggest wildcard is Trump’s policy toward Iran, Venezuela, and Russia, as well as potential tariff impacts on energy prices in America, its economy, and global economic growth.
On the supply side, expectations are bearish.
Non-OPEC+ supply, including from the United States, will continue to grow, analysts say. The expected increase is set to offset a large part of the ongoing OPEC+ production cuts. With more than 2 million bpd of OPEC+ cuts, the global oil market has a comfortable spare capacity of well over 5 million bpd, concentrated in some of OPEC’s biggest producers – Saudi Arabia, Iraq, the UAE, and Kuwait.
As a result, “The oil market is not particularly concerned about supply over the next few years, especially in an environment where Chinese oil demand growth has disappointed, especially in 2024,” Andy Lipow, president at Lipow Oil Associates, told Yahoo Finance this week.
Estimates of China’s oil demand growth have been constantly downgraded throughout the year— from 700,000 bpd growth for 2024 expected in January to just 180,000 bpd growth seen in December, Lipow noted.
Modest demand growth in 2025 and a strong supply increase from non-OPEC+ producers led by the U.S., Brazil, Guyana, and Argentina are expected to keep oil prices next year at around the current levels of Brent Crude in the low $70s and WTI Crude prices hovering around the $70 per barrel mark, most analysts and investment banks say at the end of 2024.
The oil market will see a surplus next year even if OPEC+ begins to unwind its production cuts in April 2025 as currently planned, they reckon.
In early December, the OPEC+ group decided to delay the start of the easing of the 2.2 million bpd cuts to April 2025, from January 2025. The group also extended the period in which it would unwind all these cuts into the following year through September 2026.
Due to the OPEC+ decision, next year’s surplus may not be as large as previously feared, but a surplus we will see, banks say.
Even if OPEC+ keeps its oil production as-is for the whole of 2025, there would still be a surplus in supply of 950,000 bpd next year, the International Energy Agency (IEA) said in its monthly report for December.
If OPEC+ does begin unwinding the voluntary cuts from the end of March 2025, this glut will swell to 1.4 million bpd, according to the agency.
All these forecasts could be quickly upended by President Trump’s tariff policies and geopolitical choices.
Stricter U.S. sanctions against Iran under Donald Trump and geopolitical tensions would be bullish catalysts for oil prices. But fundamentals currently point to supply outstripping demand, which is a downside risk for oil prices in 2025.
“Going short now you have to be brave,” Frederic Lasserre, Global Head of Research & Analysis at commodity trader Gunvor, told Bloomberg last week.
“Yes, fundamentals are not so great, but market participants know that geopolitics will play a role next year for sure.”
By Tsvetana Paraskova for Oilprice.com
