Up 4.7% last week on US Iran hawkishness and China stimulus optimism. Brent crude gained 4.7% last week and closed on a high note at USD 74.49/b. Through the week it traded in a USD 70.92 – 74.59/b range. Increased optimism over China stimulus together with Iran hawkishness from the incoming Donald Trump administration were the main drivers. Technically Brent crude broke above the 50dma on Friday. On the upside it has the USD 75/b 100dma and on the downside it now has the 50dma at USD 73.84. It is likely to test both of these in the near term. With respect to the Relative Strength Index (RSI) it is neither cold nor warm.

Lower this morning as China November statistics still disappointing (stimulus isn’t here in size yet). This morning it is trading down 0.4% to USD 74.2/b following bearish statistics from China. Retail sales only rose 3% y/y and well short of Industrial production which rose 5.4% y/y, painting a lackluster picture of the demand side of the Chinese economy. This morning the Chinese 30-year bond rate fell below the 2% mark for the first time ever. Very weak demand for credit and investments is essentially what it is saying. Implied demand for oil down 2.1% in November and ytd y/y it was down 3.3%. Oil refining slipped to 5-month low (Bloomberg). This sets a bearish tone for oil at the start of the week. But it isn’t really killing off the oil price either except pushing it down a little this morning.

China will likely choose the US over Iranian oil as long as the oil market is plentiful. It is becoming increasingly apparent that exports of crude oil from Iran is being disrupted by broadening US sanctions on tankers according to Vortexa (Bloomberg). Some Iranian November oil cargoes still remain undelivered. Chinese buyers are increasingly saying no to sanctioned vessels. China import around 90% of Iranian crude oil. Looking forward to the Trump administration the choice for China will likely be easy when it comes to Iranian oil. China needs the US much more than it needs Iranian oil. At leas as long as there is plenty of oil in the market. OPEC+ is currently holds plenty of oil on the side-line waiting for room to re-enter. So if Iran goes out, then other oil from OPEC+ will come back in. So there won’t be any squeeze in the oil market and price shouldn’t move all that much up.

Brent crude prices have shown a solid recovery this week, gaining USD 2.9 per barrel from Monday’s opening to trade at USD 73.8 this morning. A rebound from last week’s bearish close at USD 70.9 per barrel, the lowest since late October. Brent traded in a range of USD 70.9 to USD 74.28 last week, ending down 2.5% despite OPEC+ delivering a more extended timeline for reintroducing supply cuts. The market’s moderate response underscores a continuous lingering concern about oversupply and muted demand growth.

Yet, hedge funds and other institutional investors began rebuilding their positions in Brent last week amid OPEC+ negotiations. Fund managers added 26 million barrels to their Brent contracts, bringing their net long positions to 157 million barrels – the highest since July. This uptick signals a cautiously optimistic outlook, driven by OPEC+ efforts to manage supply effectively. However, while Brent’s positioning improved to the 35th percentile for weeks since 2010, the WTI positioning, remains in historically bearish territory, reflecting broader market skepticism.

According to CNPC, China’s oil demand is now projected to peak as early as 2025, five years sooner than previous estimates by the Chinese oil major, due to rapid advancements in new-energy vehicles (NEVs) and LNG for trucking. Diesel consumption peaked in 2019, and gasoline demand reached its zenith in 2022. Economic factors and accelerated energy transitions have diminished China’s role as a key driver of global crude demand growth, and India sails up as a key player accounting for demand growth going forward.

Last week’s bearish price action followed an OPEC+ decision to extend the return of 2.2 million barrels per day in supply cuts from January to April. The phased increases – split into 18 increments – are designed to gradually reintroduce sidelined barrels. While this strategy underscores OPEC+’s commitment to market stability, it also highlights the group’s intent to reclaim market share, limiting price upside potential further out. The market continues to find support near the USD 70 per barrel line, with geopolitical tensions providing occasional rallies but failing to shift the overall bearish sentiment for now.

Yesterday, we received US DOE data covering US inventories. Crude oil inventories decreased by 1.4 million barrels last week (API estimated 0.5 million barrels increase), bringing total stocks to 422 million barrels, about 6% below the five-year average for this time of year. Meanwhile, gasoline inventories surged by 5.1 million barrels (API estimated a 2.9 million barrel rise), and distillate (diesel) inventories rose by 3.2 million barrels (API was at a 1.5 million barrel decline). Despite these increases, total commercial petroleum inventories dropped by 0.9 million barrels. Refineries operated at 92.4% capacity, and imports declined significantly by 1.3 million barrels per day. Overall, the inventory development highlights a tightening market here and now, albeit with pockets of a strong supply of refined products.

In summary, Brent crude prices have staged a recovery this week, supported by improving investor sentiment and tightening crude inventories. However, structural shifts in global demand, especially in China, and OPEC+’s cautious supply management strategy continue to anchor market expectations. As the market approaches the year-end, attention will continue to remain on crude and product inventories and geopolitical developments as key price influencers.

Down 2.5% last week despite OPEC+ delivering more than expected. Brent crude traded within USD 70.85 – 74.28/b last week. It ended down 2.5% (-USD 1.8/b) with a close of on Friday of USD 71.12/b. The lowest print since 1 October is USD 70.70/b and the low of last week came dangerously close to that level.

The bearish price action last week came despite the fact that OPEC+ delivered more than expected at its 5 Dec meeting. Its long heralded return of 2.2 mb/d of extraordinary cuts was pushed back from January to instead April. The return of the 2.2 mb/d will now be chopped up in 18 pieces of 122 kb/d/mth instead of 12 pieces of  183 kb/d. UAE was previously allowed to increase it production by an additional 300 kb/d. This increase is also pushed back to April next year and will be diced up in 18 increments. the Monthly increases starting in April will thus be close to 139 kb/d/mth.

Too much oil on the sideline with main objective to place it back into the market. The group delivered a highly credible plan and a strong show of cohesion. The group also reiterated that the new plan can both be paused and reversed according to market conditions. And still the Brent crude oil price fell 2.5% last week. The latest communication from OPEC+ is obviously not enough for the market to be fully comfortable. After all the group keeps insisting that 1) It has a lot of oil on the sideline and 2) It WILL put it back into the market over the coming two years or so (if market conditions allow). So if and whenever there is a pocket of deficit in the global supply/demand balance over the coming two years, then OPEC+ will step in and plug it. That doesn’t leave a lot of upside for the price even if OPEC+ largely still is protecting the downside.

OPEC+ has delivered credible action and plans but has likely run out of bullets to protect the downside. OPEC+ has delivered a highly consistent and credible action since it first announced its plan of returning the 2.2 mb/d and now also a new, credible plan. But with so much oil on the sideline and its stated main objective to return barrels to the market, it seems very unlikely that it will step in and make additional cuts to protect the downside if need be. The sense is thus that the group has run out of bullets in terms of cuts. Its current cuts are as deep as they get. They have come to the end of the line. They won’t give away more market share in exchange of price. Rather they plan to take back market share. This together with a lukewarm global economy, solid production growth by non-OPEC+ in 2025 and an upcoming tariff-war (Donald Trump) keeps the oil market sentiment subdued.

Market will likely continue to fight the 70-line as Trump tariff-war grows louder. The market has been fighting the 70-line repeatedly since early September and will likely to continue to do so over the coming months as the noise from Donald Trump’ tariff-war grows louder. Sell on geopolitical rallies thus seems to be the preferable trading strategy these days.

Rebels toppling Assad lifts Brent crude up 0.7% to USD 71.6/b this morning. There are no immediate  consequences for oil except that the position of Iran and Russia in the region is significantly weakened while the outlook for the region is more foggy than ever.

Bearish market focus while US oil inventories keep falling. But while the focus in the oil market seems to be the downside risk, except for sporadic geopolitical driven rallies, we see that total US crude and product stocks keep falling. In mid-June they stood 16.1 mb above the seasonal 2015-19 average. Now they stand 34 mb below the seasonal average.

Our expectations for 2025: China oil demand growth will turn positive again. Oil demand growth in India heats up yet more. OPEC+ will spread its 2.2 mb/d increase all to December 2027. Oil market will be largely balanced. Brent crude will average USD 75/b with low of the year of USD 59/b

Total US crude and product stocks excl. SPR keeps falling faster than the seasonal 2015-19 normal.