Brent crude inch higher despite bearish Chinese equity backdrop. Brent crude traded between 72.42 and 74.0 USD/b yesterday before closing down 0.15% on the day at USD 73.41/b. Since last Friday Brent crude has gained 3.2%. This morning it is trading in marginal positive territory (+0.3%) at USD 73.65/b. Chinese equities are down 2% following disappointing signals from the Central Economic Work Conference. The dollar is also 0.2% stronger. None of this has been able to pull oil lower this morning.

”Maximum pressure on Iran” are the signals from the incoming US administration. Last time Donald Trump was president he drove down Iranian oil exports to close to zero as he exited the JCPOA Iranian nuclear deal and implemented maximum sanctions. A repeat of that would remove all talk about a surplus oil market next year leaving room for the rest of OPEC+ as well as the US to lift production a little. It would however probably require some kind of cooperation with China in some kind of overall US – China trade deal. Because it is hard to prevent oil flowing from Iran to China as long as China wants to buy large amounts.

Mildly bullish adjustment from the IEA but still with an overall bearish message for 2025. The IEA came out with a mildly bullish adjustment in its monthly Oil Market Report yesterday. For 2025 it adjusted global demand up by 0.1 mb/d to 103.9 mb/d (+1.1 mb/d y/y growth) while it also adjusted non-OPEC production down by 0.1 mb/d to 71.9 mb/d (+1.7 mb/d y/y). As a result its calculated call-on-OPEC rose by 0.2 mb/d y/y to 26.3 mb/d.

Overall the IEA still sees a market in 2025 where non-OPEC production grows considerably faster (+1.7 mb/d y/y) than demand (+1.1 mb/d y/y) which requires OPEC to cut its production by close to 700 kb/d in 2025 to keep the market balanced.

The IEA treats OPEC+ as it if doesn’t exist even if it is 8 years since it was established. The weird thing is that the IEA after 8 full years with the constellation of OPEC+ still calculates and argues as if the wider organisation which was established in December 2016 doesn’t exist. In its oil market balance it projects an increase from FSU of +0.3 mb/d in 2025. But FSU is predominantly part of OPEC+ and thus bound by production targets. Thus call on OPEC+ is only falling by 0.4 mb/d in 2025. In IEA’s calculations the OPEC+ group thus needs to cut production by 0.4 mb/d in 2024 or 0.4% of global demand. That is still a bearish outlook. But error of margin on such calculations are quite large so this prediction needs to be treated with a pinch of salt.

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.