Oversupply conspicuous in 2025

In 2025, OPEC Plus consisting of OPEC and non-OPEC members, and non-OPEC Plus members are expected to increase crude oil production while sluggish economy is prolonged in China. In this situation, oversupply is forecast.

In June 2024, OPEC Plus stated that it would end 22.0 mil barrel per day (b/d) of voluntary production cuts. It planned to increase production by 180,000b/d per month and gradually reduce the production cut volumes. However, OPEC Plus postponed the production cuts three times. The production rises would start in April 2025. If the production cuts are deferred further, members taking a positive stance for production rises including the United Arab Emirates (UAE) and Iran might strongly react against further production cuts. In fact, Angola opposed an expansion of production cuts and withdrew from OPEC Plus in December 2023. When the unity among members was disrupted in the past, key player Saudi Arabia abandoned the role as a swing producer and considerably raised production. In order to maintain the unity of OPEC Plus, it is unchangeable to implement the production rise program in 2025.

Emergence of non-OPEC Plus members cannot be ignored. Guyana in South America is vigorously producing crude oil as a giant oil field was discovered in 2015. Niger in Africa began exports of Melek crude oil in May 2024. In June, production of Sangomar crude oil started. In Canada, as Trans Mountain Pipeline started operations, Access Western Blend (AWE) crude oil and Mix Sweet Blend (MSB) are actively exported. Further, production is increasing in Argentina and Brazil as well.

Also, in the US, crude oil production is forecast to rise. President-elect Donald Trump pledges to lower energy prices and is very positive to expand oil production and use of fossil fuels. The U.S. Energy Information Administration (EIA) forecast that crude oil production would reach 13.53 mil b/d in the US in 2025 in its energy outlook published in November 2024. This largely surpassed a record high level at 12.93 mil b/d in 2023. Meanwhile, supply of crude oil from Iran might decrease as sanctions on Iran might be strengthened. Iran produced crude oil at around 4.90 mil b/d in 2017 but the production volumes plunged to 3.50 mil b/d in 2019 after the first Trump administration withdrew from the Iran nuclear deal. Nevertheless, China, which is a major buyer of Iranian crude oil, could cover the shortage with Russin crude oil. Thus, even if supply of Iranian crude oil decrease, the impact on the market would be limited. In addition, Donald Trump emphasizes to have dialogues with Russia. If some of the sanctions on Russia relaxes, supply of Russian crude oil might even increase.

On the other hand, crude oil might be further in surplus depending on the economic situation in the world largest crude oil importer China. Trump declared to impose additional tariff on almost all Chinese goods. If Chinese economy is damaged by the policy, demand for crude oil would unlikely recover in China. We should pay attention to trade policy of new Trump administration and reaction by the Chinese government.