Oil Market Shifts: A New Era of Abundance
The oil market has faced unprecedented disruptions in recent years, from the grounding of the Ever Given container ship to the invasion of Ukraine by Russia. Despite these challenges, the market has adapted, and the price of oil stands at around $70-$73 a barrel as 2024 comes to a close.
A World of Spare Capacity
To prevent the price from falling further, oil producers have held back around 5 million barrels per day of output, a historic high. This spare capacity has kept the market in check, and the International Energy Agency (IEA) reports that the balance continues to favor buyers over sellers as we enter 2025.
Demand Growth Slows
Global petroleum demand growth in 2024 was a mere 840,000 barrels a day, a significant decrease from previous years. The pandemic has skewed the market, but even in pre-pandemic times, demand growth was much higher. The IEA projects that demand growth in 2025 will reach 1.1 million barrels a day, taking consumption to an average of 103.9 million barrels per day for the year.
Supply Outpaces Demand
The IEA estimates that total petroleum supply in 2025 will increase by 1.9 million barrels a day, reaching an average of 104.8 million barrels per day. This surplus is expected to put downward pressure on prices, making 2025 a buyer’s market.
OPEC+ Cuts and US Production
The OPEC+ group has implemented production cuts to stabilize the market, but the growth in output from the US and countries like Guyana is expected to continue. The US has reached record output levels, with the Energy Information Administration reporting around 13.6 million barrels a day.
Battery Electric Vehicles: A Growing Factor
The growth of battery electric vehicles, particularly in China, is having a significant impact on diesel demand. According to Argus Media, European diesel demand is in chronic decline, with consumers shifting to gasoline and alternative fuels. This trend is expected to continue, with Chinese demand for gasoline and diesel having peaked.
Petrochemicals: The Bright Spot
While demand for transportation fuels may be slowing, the demand for petrochemicals is expected to continue growing. The IEA reports that gains in petrochemical feedstocks, such as naphtha, LPG, and ethane, will dominate the market in the coming years.
As we enter 2025, the oil market is poised to become increasingly favorable to buyers. With spare capacity at historic highs and supply outpacing demand, prices are expected to remain low. The growth of battery electric vehicles and the shift towards alternative fuels will continue to shape the market, making 2025 an exciting and unpredictable year for oil.
Leave a Reply