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.

After gaining USD 2.6 per barrel from Tuesday until midday Wednesday, Brent crude prices lost momentum yesterday evening, plunging by USD 2 per barrel to the current level of USD 72.3 per barrel. This marked a significant and counterintuitive move just hours ahead of today’s OPEC+ meeting at 12:00 PM CEST, where the market largely anticipates a rollover agreement. OPEC+ is expected to maintain its current supply cuts, refraining from adding additional volumes to the market for now.

The USD 2 per barrel drop was partly driven by a single market player – a U.S. bank – that sold a massive volume of U.S. oil futures during the evening (CEST), pushing prices lower and leaving traders scrambling to interpret the rationale. According to Reuters, the unidentified bank sold over USD 270 million worth of U.S. oil futures.

The market consensus is now that OPEC+ is likely to extend its most recent round of production cuts by at least three months starting in January. This move would provide additional support to the oil market, even though OPEC+ had hoped to gradually phase out supply cuts next year. For now, there appears to be little room for additional OPEC+ volumes in a market still grappling with weak demand.

At 16:30 CEST yesterday, the oil market received a bullish U.S. inventory report. Commercial crude oil inventories (excl. the SPR) fell by a substantial 5.1 million barrels to 423.4 million barrels, about 5% below the five-year average for this time of year. This decline was a stark contrast to the API’s earlier forecast of a 1.2-million-barrel build in crude inventories.

For gasoline, inventories increased by 2.4 million barrels (API forecast: +4.6 million) but remain 4% below the five-year average. Distillate (diesel) fuel inventories rose by 3.4 million barrels (API forecast: +1 million) but are still 5% below the five-year average.

U.S. crude oil refinery inputs averaged 16.9 million barrels per day, up 615,000 barrels per day from the previous week. While refineries operated at 93.3% of their capacity. Gasoline production declined to 9.5 million barrels per day, while distillate fuel production increased to 5.3 million barrels per day.

Over the past four weeks, total products supplied – a proxy for implied demand – averaged 20.4 million barrels per day, a 4.0% increase compared to the same period last year. Key metrics include gasoline demand at 8.8 million barrels per day, up 2.8%; distillate demand at 3.7 million barrels per day, consistent with last year; and jet fuel demand up 7.1% year-over-year.

Overall, the report was bullish, reinforcing expectations of a tightening market.

Attention now shifts to OPEC+, geopolitics (including the Russia-Ukraine conflict, Middle East tensions, and Iranian sanctions), and global demand, particularly in China. Weak demand in China throughout 2024 pushed global oil prices downward, especially in the second half of the year. However, we believe the narrative is shifting(!)

China appears to be stabilizing and showing signs of recovery. Manufacturing PMI has ticked higher, and the economic surprise index has also improved. As the world’s largest oil importer, China turning the corner is a significant positive development. This strengthens our view of limited downside risks to oil prices as we head into 2025. While caution remains warranted, we continue to favor a long position on Brent crude.

Since yesterday morning, Brent crude prices have climbed by ish USD 2 per barrel, recovering to the current level of USD 73.9 per barrel. This represents a significant price movement over a short period and marks the largest such increase since mid-November.

Market whispers suggest that OPEC+ is likely to announce a deal to further delay the planned supply increase during their meeting scheduled for tomorrow (December 5th). Concerns about weaker global demand in the coming year leave little room for additional OPEC+ supply, compelling the cartel to exercise patience in its efforts to regain market share.

Adding to the upward pressure on crude prices, the U.S. has escalated its sanctions on Iran, targeting the country’s vital oil sector – a critical source of revenue.

Yesterday (December 3rd), the U.S. imposed sanctions on 35 entities and vessels associated with Iran’s ”shadow fleet,” which secretly transports Iranian oil. These operations rely on fraudulent practices such as falsified documentation, manipulated tracking systems, and frequent changes of ship names and flags. This move builds upon earlier sanctions, including those introduced in October this year, which restricted transactions involving Iranian petroleum and petrochemical products.

According to the U.S. Department of State, the latest measures aim to further disrupt Iran’s ability to finance activities deemed destabilizing in the Middle East, including its nuclear program and support for regional proxies.

From a market perspective, Iran’s crude oil and condensate exports reached roughly 1.7 million barrels per day in May 2024, the highest level in five years. China, as Iran’s largest importer, accounted for ish 490k barrels per day of these exports in 2023. The newly imposed sanctions could lead to a substantial reduction in Iran’s oil exports, potentially cutting up to 1 million barrels per day, depending on the enforcement’s strictness and global compliance.

Iranian crude exports to China have increased this year, but the sanctions may compel Chinese firms to reduce or halt purchases to avoid U.S. penalties. This would likely drive a search for alternative crude sources to sustain China’s refining operations, thereby adding further support to the current upward pressure on crude prices. This, together with the likelihood of OPEC+ continuing to delay their planned production increase, reinforces our view of limited downside risks to prices in the near term – caution remains reasonable, and we continue to favor a cautiously long position.