Oil market dynamics in 2024 and the path to 2025

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Joel Hanley:

Hello and welcome to the Oil Markets Podcast from S&P Global Commodity Insights. I'm Joel Hanley. As 2024 draws to a close, we look at the major events and themes of the year in oil markets, as well as taking a look at what might be important in 2025.

As we head deeper into December and the holiday parties become ever more plentiful, we thought it would be the right time to slow things down a bit and review the last year in oil markets. Now, 2024 has seen its fair share of market news and trends, the same as every year, I suppose, but we'll be looking back over that, but also we're going to share some outlooks and perspectives for the coming year.

Now, joining me on this edition of the podcast, all resplendent in their obligatory holiday sweaters for this festive occasion, are three esteemed colleagues. We have Jeff Mower, our director of oil news live from New York, Sambit Mohanty in Singapore, who is our news lead on all things oil in that region, and finally, Richard Swann in Houston where he's responsible for our global clean, refined oil products assessments, the yin to my crude and fuel oil yang, if you will.

So where to start? Well, we all know that oil is very susceptible to geopolitics and we came into 2024 with war in Ukraine fully entrenched for a couple of years at this point and also was not long after, the October 7th attacks on Israel, which have dominated the news agenda for so many since. So wars have of course been on the market's minds, but arguably with not such a great deal of price impact as some might have anticipated. And I guess that's mainly down to one of the largest themes of the year and that is slowing demand growth in the face of growing oil supply. So for me, that's the biggest theme of 2024. I want to find out what you guys think. Richard, how have you seen the demand story over the year? Is it an economic slowdown or is it a move away from liquid hydrocarbons? Perhaps it's both.

 

Richard Swann:

Spoiler alert, I think it might be both, Joel. Yeah, I think your premise is spot on. Those two conflicts you mentioned, Ukraine and the Middle East, obviously is still very much with us, totally still raging in both places. But from an oil market impact, it's actually been a much more muted year than the last couple. Prices have been relatively stable. Supply-demand balances have felt a bit weak from a sort of product perspective. There's been enough oil essentially of whatever kind you want, whether it's crude or the products, generally we've had ample supply sort of hanging over the market this year.

As a result, the markets have not had the same price performance as in the last couple of years. Last couple of years, we saw some of the highest ever refining margins, crack spreads for the big products like diesel, even gasoline, jet fuel, really high, all time high prices. This year, nothing like it. As a distillate in particular, which was maybe the market we were most concerned about from a supply situation after the Russian invasion of Ukraine, the potential to have lost Russia as a global supplier of diesel could have left the world short of the really key demand product there, but it just hasn't happened this year. It's been pretty ample in all regions. If I look right now, I think crack spreads are pretty much where they were before the pandemic really. They're at those kind of levels. So they're not particularly low by historical standards, but they've really come off from the last year.

You haven't seen that sort of overperformance in any of the key refined products that sort of boost the margins for refiners everywhere, whether that's diesel, whether that's gasoline with the summer driving season here in the US also wasn't bad, but it wasn't anything to write home about compared to the last couple of years. Funny enough, as we get towards the end of the year here, if you look over the last couple of months, more recently, the products that are actually picking up are the traditionally the lower value products, notably naphtha and fuel oil, not the glamour products, not the high value ones as I say. But you look where naphtha crack spreads are and where fuel oil crack spreads are. They're actually at their highest point for a couple of years now, a bit more actually, probably more like two and a half years in both cases, and they've been rising steadily through much of the year. So they're not the ones though that are going to swing it across the whole barrel for the refiner. So a fairly weak year dominated by oversupply.

So the question you set me up with though, what's going on? Is it weak underlying demand or is it the switch to alternative fuels? Well, it is a bit of both. Economic growth, particularly in the major developed economies, has not been great. Are you really seeing a dent in demand from the alternative fuels, if you like, stealing market share from the oil-based fuels? In some parts of the world, you are starting to see this. I just give you a couple of examples. California jumps to mind. Obviously, I'm here in the US, so it's more on my mind. But if you look at the data for what's going on in California, particularly look at the diesel market and how much of that market has now been claimed by renewable diesel, although the name sounds similar, it's a totally different fuel derived from non-hydrocarbon feed stocks. For most of the year, it's been over 50% of the California market, at times even higher.

Now that's a pretty significant dent in demand starting to happen there. Obviously California is at one end of the scale in terms of offering incentives and essentially different kinds of fiscal and financial incentives to renewable fuels. So you might expect to see the supply pick up more quickly than anywhere else, but it is happening there. The last one I'll leave you with before I finish this slightly rounding answer is China. What some of the more sobering statistics I've seen this year were, well, it was really a set of demand projections or demand calculations for China for key refined products. And if you look at the key transport fuels, so add together diesel or gas oil, whatever grade of gas oil or diesel you're looking at, gasoline and jet fuel, combine those together, China looks like it's either right now has already peaked or is basically at its peak demand.

And that's a sobering thought, the demand growth in China has underpinned a lot of the overall demand growth in the world for the last 20 years. And if those fuels are starting to level out and they're leveling out because of the growth of EVs, to be blunt, eating into gasoline demand in China, EV sales are rising very quickly in China, but even you've got fuel switching in diesel, big part of the truck fleet moving over to LNG, these kinds of things, they are happening. So I think there's storm clouds brewing.

 

Joel Hanley:

No, definitely. And China is an interesting example because I think it is a mixture of economic slowdown and the EVs, they've really made the EV story work. And you mentioned California, you could say the same of certain towns in Norway for example, where there's huge incentives to take on an EV as a basic consumer. But Sambit, you're sitting closest to China on a daily basis, what do you see? Because there are economic headwinds there that we haven't really been used to.

 

Sambit Mohanty:

A lot of debate this year has been around China's oil demand outlook on issues whether gasoline demand indeed has peaked as EV penetration rises. And secondly, what will be Beijing's policies that bring the economy out of a slow period of growth. The latest view from S&P Global Commodity Insight is as of now is that China's oil demand is expected to grow just close to 1% this year, which will be around 17.3 million barrels per day. And next year, it could rise a little bit to up to 1.7%, that will be around 17.6 million barrels per day. The demand increase in trade '24 is primarily supported by LPG and jet fuel oil. And that said, one of the most interesting pieces of data is that China's crude runs are almost set to decrease by 400,000 barrels per day in 2024. And that is in contrast to a significant year-on-year increase of 1.2 million barrels per day that we saw in 2023. Policy support for the property sector and private consumption is expected to support demand.

But the general expectation is that an increase in demand for transportation fuels will be very limited in 2025 with annual growth primarily coming mainly from chemical feedstocks. We should remember that some of the China's growth boosting efforts are also low carbon in nature. While car sales could accelerate in 2025, a good portion of that will be electric vehicles and that would be basically because of the vehicle treatment programs that's going on and it'll result in the scrappage of a less fuel-efficient cars. Gasoline demand could grow very slight, moderately or there is a lot of possibility that by 2025, we will see a very clear peaking of gasoline demand in China. The good news, however, is China's GDP forecast for 2024 remains close to 4.9%, which is close to their 5% target and that is supported by the enhanced stimulus package. However, potential US tariffs pose a significant downside risk for all markets and that will also include oil.

 

Joel Hanley:

You're right and we'll come to tariffs later on, I should think, because certainly one of the main features of the year has been the political side of things. But Jeff, like the rest of us, you've been watching demand growth projections over the year falling and falling, I've said on the podcast before, a race to the bottom right. OPEC had it over 2 million barrels a day demand growth in 2024, the EIA most recently, I think, under 900,000 barrels a day. So there's a big difference depending on your agenda and how you calculate it, but what's your view of the demand growth this year and maybe looking into next year?

 

Jeff Mower:

Yeah, Joel, thanks. Yeah, thanks for having me. One thing I wanted to touch on was something Sambit mentioned. Sambit, you were talking about the property sector overhang in China and that's one thing I thought was really, really interesting about the futures oil market this year. I say futures because we're constantly looking at futures. But it was interesting, you'd see these blips in prices, the price would jump on some geopolitical, maybe an attack, Israeli attack on Iranian infrastructure, something like that. But you're right, the price would come right back down and largely because of China and any kind of measures being taken there to kind of boost that market. And I think what's interesting is just the attention that was being paid on this sort of property overhang. I was doing a bit of digging. Did you know S&P Global has a China Property Watch? We do. Pretty cool. According to China Property Watch, there was roughly 740 million square meters of completed unsold property inventory in China year-to-date in 2024, that's up from 500 million square meters in 2020.

 

Joel Hanley:

Right. So as the specials would say, this town's coming like a ghost town, right?

 

Jeff Mower:

Yeah.

 

Joel Hanley:

They've seen the pictures of these ghost towns in China.

 

Jeff Mower:

Yeah. So there's no new home starts. You're not going to get a lot of building there until they can clear that inventory. So the government has to boost measures to reduce inventories and some cities have canceled or reduced these sorts of price restrictions allowing market rates in this property market. So that's what I think is interesting, just sort of how the attention being paid on that, something so specific.

And I think according to one of the S&P reports, I thought these new government policies could kind of clear maybe 9 to 11% of that market if these policies are enacted. But then we brought up this trade war or possible trade war if additional tariffs are placed by the Trump administration, the incoming Trump administration, on Chinese goods. To Sambit's point, GDP growth currently running around a little under that 5% target, but it could slow. It could slow to say 4% if we see some sort of a trade war. And you have to wonder, well, in the event of something like that, what are homebuyers going to do in China? Are they going to delay purchases? What's going to happen to the property market?

 

Joel Hanley:

No, fair question. But I suppose the property issue in China has become a big issue because it's one of the more transparent pieces of data that people can point to when they're looking at an economic slowdown. The oil markets is another of course. If I steer it back to oil for a moment, do you think that the million barrels a day or thereabouts of demand growth that is now projected for 2025 is realistic? Having seen the retrenchment of that prediction or the projection throughout the year from just about every single analyst over 2024, how sure can we be that anyone's going to get it right in 2025?

 

Jeff Mower:

I think it's a really good question because again, when it comes to the possible trade war, well that could slow things down. What would that mean for US growth, additional tariffs? What would Trump's plans to round up illegal immigrants and move them out of the country, what would that mean as far as would that drive up labor costs? We already have a very tight labor market in the US and would that drive up labor costs? So it seems like a real possibility depending on the pace and that, again, that's the sort of unknown. How much would the Trump administration be not just willing to do but able to do? And that's what we're not sure about yet.

 

Joel Hanley:

Yeah, well, we'll definitely come with the Trump administration in more detail later because it is a very large emerging theme for 2025, no doubt. I mentioned trade flows earlier, since Russia turned the oil world on its head with its war in Ukraine, that certainly changed a lot of things. I don't think there's been a bigger beneficiary, if you will, I don't think anyone has taken more advantage of that situation in terms of trade than India whose crude slate has changed hugely and largely towards the Russian Urals crude that isn't so favored in the West anymore. I thought that that was around about 1.4, 1.5 million barrels a day of Urals coming into those big refineries in India. And I think we'd started to see it dropping a bit, but actually, I think last month or the month before was probably the biggest ever. So Sambit, how do see India's role in this? If China is slowing down, how do you see India in 2025?

 

Sambit Mohanty:

Yeah, we have seen the IEA pointing to the fact that India will be one of the strongest growth centers in Asia as far as oil demand is concerned from now until 2030. But that said, coming back to the Russian crude side, right now, Russian crude, which was before the Russia Ukraine was started, was not even 1%, right now it is 40% of India's crude import basket and basically they have displaced Iraq, Saudi Arabia, all of them, Russian crude to take the number one spot there. So pretty much everyone is buying Russian crude in a big way, obviously for the attractive pricing that they are getting. Our internal prediction is that that 40%, it'll probably continue in the similar fashion next year also, unless some drastic changes happen as far as science and its policies are concerned. So Russian crude will be right at the top as for Indian refiners are concerned. So that's definitely going to happen without any doubt.

 

Joel Hanley:

I agree with you there, but one thing I'm interested at the moment is the possible threat to Russian dominance. Well, they'll still dominate probably, it'll still be the largest share of the slate, but Narendra Modi, the Indian PM, was in Guyana in November, I think. Yes, it was last month, wasn't it? And he met President Mohamed Irfaan Ali in Guyana. And clearly, Guyana is a rare Latin American country, well, it's a South American country that isn't Latin, right? It's a mostly Indian population. And so of course there is a natural link with India. In terms of energy security, I think it looks like India is gearing up for some further investment into Guyana. Guyana within a year or two will be producing a million barrels a day of oil. So I'm wondering if that will change the flows a bit, that the markets that have relied on this new Guyanese oil might see the rug pulled out from under them as India starts taking a bit more. What do you think of that?

 

Sambit Mohanty:

That's definitely a possibility, Joel. Obviously the Indian Prime Minister Narendra Modi had his maiden visit a few weeks back to Guyana and obviously oil was differently on top of the agenda in terms of purchases in the future purchases and they have made it very clear about that. Until now, India only had bought a couple of trial cargoes just two years back, just to try out a couple of trial cargoes and that's pretty much it. But after that, none of the refiners have gone ahead and bought anything. But pretty much every refiner right now is starting to talk, case the state-run refiners are talking in terms of possibility of exploring term contracts for Guyanese crude. That will obviously depend on how much South American country can basically allocate, but obviously that's definitely going remain a key priority for the government. But it's basically they're looking to diversify in a big way. Africa, where they're buying in a big way. Russian crude, obviously, we have seen that they have raised the volumes in a big way. So obviously, the crude diversification strategy is top of the agenda for the government.

 

Joel Hanley:

And they're sitting pretty, right? They stand in such a great geographical location and also politically really making some inroads as well. It's a great time to be an Indian oil refiner. The margins aren't quite as where they were when Urals was at the kind of discounts straight after the Ukrainian war started, but still doing very well. How about you, Jeff? What are you seeing on trade flows? I say we can come to the politics of it in a minute, but are you seeing interesting things happen?

 

Jeff Mower:

Oh, yeah, absolutely. You mentioned Guyana and the non-OPEC or supply growth has been pretty dramatic and it's something, obviously OPEC is watching, everyone's watching. But you mentioned Guyana, but also US crude production, we're at 13.5 million barrels a day. It's another all time high. A lot of that's being exported. Argentina, Argentina is now producing 700 round 740,000 barrels a day, the highest in 22 years. It's driven by this Vaca Muerta shale play.

 

Joel Hanley:

Yeah, Vaca Muerta probably the nastiest crude oil name in the whole world if you translate it. But a fascinating grade and really changing Medanito flows, yeah?

 

Jeff Mower:

Yeah. And you're really seeing, we're expecting to see increased takeaway capacity from the Vaca Muerta in early 2025. That's expected to reach I think 750,000 barrels, so you're going to be able to see more exports of that crude onto the market.

 

Joel Hanley:

And Brazil, let's not forget Brazil. We've got Tupi Brazil, these are big grades being exported now.

 

Jeff Mower:

Yep. We've got around 4.3 million barrels a day, that was in October. Now it's fallen a bit, but it's only fallen because of FPSO maintenance. So these floating production units, there were some maintenance, but we have several of these units starting up now. They're starting up by the end of the year, so that should bring more production online. One interesting tidbit about these floating production units, a bit of a snag, Petrobras, recently, Petrobras, the Brazilian state company launched a new tender to build two new FPSOs and now followed several years of delays and kind of failed attempts to attract shipbuilders. So there is an interesting, it'd make for a whole other, I think, interesting podcast just on FPSO delays. There's financing challenges and I think that's largely coming from the global energy transition. So there's a bit of a delay in getting these units.

 

Joel Hanley:

Interesting. And shipping's been a big story this year. Granted, an FPSO is a traditional ship, but TMX, the Trans Mountain Expansion up in Canada, which has now led to a regular reliable stream of heavier sour crude coming out of Canada, Vancouver way into China and also into the west coast of the US that's displacing Latin American barrels or maybe African barrels. But also, the interesting thing on the shipping side over the year has been the expectation that the Afromax market would be sucked into the Vancouver to China route, which it was to start with, but now we're seeing more VLCCs I think, but they do tend to load on Afromax. And also Afromax is coming out of WTI Midland areas from Houston or Corpus Christi into Europe for deliver into the Dated Brent benchmark.

There's a bit of Afro-tightness that's been going on throughout much of the year, but maybe waning here and there and of course, but the other part is the Red Sea, but people are trying to avoid the Red Sea making longer voyages. And so the global shipping market has seen quite an interesting year as well. Richard, on the trade routes and the flows, I know that this year, your team launched an all-origin destination Brazil diesel assessment. That was a reflection of the new trade flows, am I right?

 

Richard Swann:

Yeah, very much so. I think the flow of diesel has been one of the more visible ones we can see coming out of Russia and we've been able to see the cargoes going straight to Brazil essentially. What they've done there is diesel's quite a big import into Brazil and the availability of Russian diesel has essentially backed out the previous imports, which were pretty much a hundred percent from the US Gulf Coast. Now should be clear at this point, there's nothing funny going on here, nothing illegal, no sanctions being broken. It's perfectly legitimate for third countries to import Russian oil products, but not into the G7 and not using G7 services, if you will, unless you comply with the price cap. But what's really happened is remarkable actually. Diesel to Brazil is one of the more obvious ones, but what's happening everywhere is a great reordering of things.

Essentially, pretty much the products are coming out, as you would expect from Russia, i.e. when they have surplus, it is being exported and it is finding markets. It's just not finding the traditional markets in Europe that it used to find depending on the product, but you're finding new trade routes opening up. Now these products, certainly initially, have to be discounted in order to win market share. The discount in Brazil was actually quite steep at first. But there've been times actually where the discount relative to US diesel, for example, for Russian diesel delivered them to Brazil, is really low, like one or two cents per gallon. They're not heavily discounted anymore. The trade is still, I would say, living in a slightly opaque space. It's not very transparent. You won't tend to see very visible transactions with names of buyers and sellers attached, but the flow is definitely happening. And for the time being, is relatively established. Obviously, if sanctions were removed, you suspect that economics would dictate a reordering of flows back to something closer to what they were before. But for now, we seem to have found a new equilibrium.

 

Joel Hanley:

And we mentioned shipping and you see that new flow. I would remind you one of the most interesting infographics that we published at S&P Global Commodity and Science this year is about the shadow fleet, about the kind of vessels that's supporting that Russian trade and sort of the politics around it. So it's a really interesting infographic if you can get your hands on that. Now, I think we can't talk about 2024 and indeed 2025 without talking about the impending return of Donald Trump as US president. And he's given to big statements and big promises and as I mentioned on previous podcasts, he's going to solve Russia-Ukraine with a phone call and deal with all matter of other things very quickly, he claims. But tariffs and other trade restrictions might be top of his list. Jeff, what are you expecting from Trump having a second go at making America great again?

 

Jeff Mower:

Well, one thing about Trump is obviously so unabashedly pro-oil. So he's coming in saying, "We want to boost production, we're going to drill, baby, drill again." Well, there's a big problem with that. What we were just talking about, all the production that's coming out of different countries and OPEC's holding back at the same time. It's like there's just plenty of oil around. So how many companies, even if Trump comes in and says, "Okay, go at it." Here, we're going to open up, opening up a lease some federal lands for lease, to lease it out to drill. That's going to take a while, it's not going to happen overnight. So there might be some interest there. But otherwise, maybe you could remove some restrictions here and there, pull some regulations, streamline something, but I don't think that's going to happen overnight. And companies so far, they're holding on oil companies, they're holding their CapEx kind of flat.

I think S&P analysts expecting oil-directed CapEx to hold flat at $90 billion for 2025 and 2026 and operators to hold production flat. Chevron last week came out and unveiled their 2025 budget and they cut it a bit. They cut it by a billion to around 14.5 to 15.5 billion. They cut their Permian Basin budget a bit. And again, they're really looking for free cash flow. They're really looking to return to investors here. So really, so much just depends, as we all know and we talk about all the time, on prices. So at the current price, so $70-ish level, not expected to see much growth. At $80 a barrel, WTI operators could theoretically grow output by a million barrels a day and maintain the sort of good margins there. But that price would need to be maintained. And if prices fall below $55 or so, you'd see supply probably contracting again after if $55 was maintained for a good amount of time.

So as far as the tariffs go, you have to wonder what would that mean for, I was thinking about this the other day, what does that mean for oil field cost? So let's say you place tariffs and you drive up steel. The cost of steel, could that impact the cost on your upstream operations at a time that demand is dropping? Let's say you have mass deportations. Would that drive up oil field costs? On the operation side, it's unlikely there's much unskilled, undocumented labor on the sort of operations side. But on the construction side, road paving, well pad construction, if they're sent away, what does that mean for the labor market? What does that mean for costs?

 

Joel Hanley:

It's a proper issue. We've seen it in the UK with Brexit. I hate to mention Brexit again, but yeah, we have seen that, the cheaper labor making a big difference to someone's costs. And indeed, one thing onto Trump I guess though is that the carbon costs might not be so accounted for as people might be expecting. Obviously CBAM and other things are coming in and that will add costs that will eventually be passed onto the consumer, one would think, but it's difficult with the environmental sort of opinion of Trump means it might not be quite such a big thing.

 

Jeff Mower:

I do want to add one thing though. I think this is something to really, really watch. So even though Trump is saying, "Drill, baby, drill," I think what he really wants is for US energy to be very competitive. If you can drive down the cost, let's take tariffs off to a table for minute, but if you can drive down the cost, if you can drive down netbacks, if you can produce profitably at a lower oil price that makes US crude more competitive on the market, it also makes it a more valuable, whatever, tool on the geopolitical front. And something to keep in mind there are just increased efficiencies, this is something we've been watching and writing about, increased efficiencies in US oil. So you simply need fewer rigs to produce this record high output right now.

You have these longer laterals, three-mile horizontal pipe, Nabors Industrials, they're like the world's largest land driller. They came out recently and said, "Oh, we have laterals in excess of four miles now." There was a release yesterday by what used to be Schlumberger, SLB, they announced this new, it's called Neuro autonomous geosteering. What is that? So SLB says they are now able to use AI to autonomously "guide the drill bit through the most productive layer or sweet spot of the reservoir." For instance, they said in a project in Ecuador, they were able to complete 25 trajectory changes with each interpretation taking only seconds of AI.

 

Joel Hanley:

That's mind-blowing.

 

Jeff Mower:

It is one application, but I don't know how much time it took before that. It'll be really interesting to see. That's one thing I think about. What does that mean for-

 

Joel Hanley:

Yeah, that's Daniel Plainview drinking a lot of people's milkshake very quickly, right?

 

Jeff Mower:

Yeah.

 

Joel Hanley:

If we look at There Will Be Blood. And those kind of technological advances make the US in an even stronger position than it was when OPEC tried his market share strategy in 2014 and didn't manage to knock out the more resilient share of production, more resilient than people expected. But I do agree that there's some big personalities. There's Putin, there's MBS, there's in Saudi Arabia, there's Trump. I do see it as a matter of pride as to how much they can put out. Let's just jump over to what the Trump administration means for Asia, but also I think we should definitely come back. Richard, I want to ask you about OPEC in a minute, so get ready for that. But Sambit, just quickly, what does the Trump administration mean for Asia do you think?

 

Sambit Mohanty:

Yes, it's certainly one of the top themes for the good market here in Asia. There are two aspects to it if we look at it. One of course is related to the flows of US crude to Asia and the other is related to the potential policy changes by Washington on Iran, Russia and Venezuela, which could also alter Asia's overall oil inflow map. We are certainly going to see a scenario in which Asian oil buyers will be negotiating for and looking for more opportunities to boost their oil inflows from the US with the production growing they have extremely rapidly. But the key question of course is how will flows of US crude to China will be affected? If you look at some of the numbers by S&P Global Commodities at sea, US crude exports averaged close to 3.9 million barrels per day over the first three quarters, but exports to Asia has fallen by almost 88 to 90,000 barrels per day in the same period. And that's largely because China's imports of US crude oil has almost halved from close to 300,000 barrels per day to 135,000 barrels per day, same period last year.

And that's because China's domestic production is rising and there is of course a shift towards discounted Iranian oil, which is also flowing to independent refiners in China. There will be a lot of silver lining for US crude in Asia because South Korea's imports are growing in a big way. India will be looking in a big way to boost crude imports from the US. Also, refiners are talking for term contracts. So these will be bright spots. And in case, let's say China's imports from the US falls in a big way, so there'll be other buyers, key buyers, and that'll be Japan, Taiwan and Thailand, who are really interested to buy much more of WTI Midland crude. They'll get a chance to step into procure additional spot cargoes of light sweet US crude. Obviously a lot would, again, depend on how Washington's policies is going to affect so many of the suppliers. So that would be one of the key things that Asian markets will be watching in a big way once Trump is sworn in next month.

 

Joel Hanley:

Definitely. And I mentioned OPEC a moments ago, Richard, you and I used to chase them around Vienna and have a lot of fun at Christmastime trying to find out what was going on in the oil markets. Not so easy these days because they've moved half the meetings online and they keep moving the date because the oil output increases get deferred, the meetings get deferred. They've had a year to forget, haven't they?

 

Richard Swann:

Yeah, for sure. Interesting dynamic, isn't it? The way so many of the meetings now happen virtually and at quite short notice. And essentially what's been happening is they've been cutting, so there are barrels removed from the market, OPEC+ is restricting supply, if you will, and they should have been bringing those cuts back to the market by now. They should have been putting the oil back on the market and they've kept kicking the can down the road. And there are shades of, I think you mentioned 2014 just now, there are shades of that or even a few other times in recent history where OPEC is left in a bit of a quandary here or OPEC+. And at its core, Saudi Arabia. What do you do here? Do you keep restricting supply in the hope that at some point demand will grow and you'll be able to put more oil on the market and in the meantime you can defend price? Or do you actually get sort of tired of this? Because if you look around you, what are you seeing and what have you seen this year?

You've seen all of the additional demand growth being taken up by non-OPEC supplies. Obviously, with US supplies, we tend to think of first, but also other countries, Brazil, Guyana, other places are putting additional oil, a bit more Canadians on the market this year. It's like they're taking the demand growth essentially. And if OPEC's not careful, they can look forward to next year, short-term projections suggest there's more of the same to come. There's trouble brewing here, if you will. There's trouble within the group anyway because are they all actually cutting equally? Are they upholding their pledges? Internal discipline will come to the fore I suspect in the coming months. But at some point there's a decision to be made because ideally they'd like an even higher oil price environment, some of the OPEC plus countries, than they currently have, but they're worried about putting oil on the market and actually pushing it down. And if you keep yourself in that scenario, it sort of doesn't work. You're ending up defending a price which only benefits the other producers who are outside the OPEC+ group and that's the kind of cycle we're in.

Now historically, that cycle has been broken. When that cycle breaks, it breaks hard, as we saw in 2014, it breaks the other way, oil gets put on the market, there's a distinct price reaction to the downside and we go again from there and it becomes quite cyclical. And I don't know how likely that is next year. I'm not saying that's going to happen in sort of the first few months of next year, but the pressures are clearly building. One thing I find interesting, I was talking about this with someone recently, is one of the differences between the current market situation and what we've had in the past, when we've had these previous cycles where OPEC has essentially been artificially restricting output to bolster prices but has actually got bored of losing market share to non-OPEC and has essentially opened the taps, when that's previously happened though, the calls for discipline within the group and the drive to cut production to maintain the price has been happening against a backdrop of a growing world demand for oil, let's say, a long-term demand.

Maintain the price now in the short term by artificially restricting supply and in the long-term, we'll guarantee a more profitable market for our resources. More or less that's the argument from the producer side. But that fundamental picture is changing. What does that dynamic look like if you actually think global demand for oil isn't going to keep rising? And actually the pie isn't going to keep growing, why are you still restricting production now for what to happen in the future? When and where are you going to put these barrels on the market? I think it's starting to feel like a slightly different question to how it did sort of 10 years ago.

 

Joel Hanley:

Yeah. And I think one of my predictions for 2025, before I ask you yours, is the increasing lack of cohesion or indeed, regardless of any sanctions they put on each other or compensation they put on each other for over producing, I think that is a relationship that is fraught with danger. There's a lot of countries, as I mentioned, a lot of big personalities, Angola's already gone, I think that would be my prediction for 2025 is greater headwinds for OPEC+. How about you three for 2025? Not necessarily your New Year's resolutions, but what do you expect to see in 2025 or what are you excited about when it comes to oil markets?

 

Jeff Mower:

I think to Richard's point, when he is talking about all this crude coming on the market and where's the demand for that crude, I going to go back to efficiencies. I just think that's a fascinating subject. How are you going to be able to compete in that sort of market, you need to be able to drive down your costs. Any kind of advances made wherever in the world I think will be very important and be very closely watched. We'll be watching it.

 

Joel Hanley:

Absolutely, we will be. How about you, Sambit, what are you looking forward to?

 

Sambit Mohanty:

Yeah, if you look at our first take, which we have recently launched, the December 1st edition on OPEC+ is seen as neutral for prices basically because the market probably has too much of oil and there are too many question marks on demand in places like China, obviously. And the key question of course is also related to non-OPEC production growth. It's again... surplus is again going to be a buzzword into 2025, US, Canada, Guyana and Brazil, not to forget. So we are expecting a decent amount of production growth in all these non-OPEC countries. So that will definitely be keeping a lid on prices for the time being.

If you look at some of our forecasts, our latest forecast, I saw was that that's Dated Brent had expected drive rates around 800 barrels in 2024 and that's our S&P Global Commodity Insights forecast. But in 2025, global oil and liquids production is anticipated to exceed the growth in global oil demand. And as a result of that, Dated Brent has projected to moderate to over around moderate to lower 70s per barrel. And the imbalance is forecast to continue beyond next year leading to further easing of Platts Dated Brent to touch below to 70 barrels, from $70 to barrel in 2026. So that's as per our analytics tool.

 

Joel Hanley:

Right. And the question is though a lower price doesn't necessarily mean weaker structure though. We've seen lower prices this year and we've seen it fairly resilient to all the geopolitical tensions we've seen, but structurally, it's still a hand-to-mouth market, it's still backward-dated, the prompt prices is stronger than the price further out. It's not a carry market yet, but maybe with further weakness we might see that. Richard, what do you see for 2025? Hopes for the year's expectations?

 

Richard Swann:

Well, actually it's interesting what you just said, Joel. Some of the refined products markets have had spells of contango this year, there is weakness there and that's kind of where you see it because what people really use is the refined products. We talk about oversupply on crude. There's oversupply of refined products already and then throw into that the mix growth in refining capacity, going to be really interesting this year to see the full impact of the massive Dangote Refinery in Nigeria. It's started up already. I wouldn't say it's reached normal operating levels yet. As it does, that's going to put more oil onto the market and very obviously rebalance trade flows in the Atlantic Basin as well.

 

Joel Hanley:

Great. Well, thank you, Richard and Sambit and Jeff, not only for your contribution today, but for throughout the year really. And thank you to all of our contributors and producers throughout 2024 that make the podcast so special. And thank you for listening. Your support of this and other S&P Global podcasts really does mean a lot and your feedback is always welcome. Thank you very much and happy holidays. This edition of the podcast was produced in London by Felix Fernandez.