Market Report Week 47 - 19.11.2024

Oil under pressure, but OPEC+ to add support 

The oil price has remained under pressure recently, and Brent front-month is testing the strong support level in the USD 70-72 area. The combination of a stronger US dollar, fewer US rate cuts, Chinese demand concerns and speculations that the Trump administration will be able to boost US oil production are weighing on prices. 

Today's edition discusses the recent geopolitical developments in the last three days and the three oil market reports published last week. Overall, they painted a picture of a market that looks increasingly oversupplied. 

Oil under pressure, but OPEC+ to add support 

There are no major key events for the oil market this week to follow, and the market will very much be looking forward to the crucial OPEC+ or Joint Ministerial Monitoring Committee on December 1. Hence, the market will scrutinise any media comments from OPEC "sources". 
We expect that the OPEC+ will delay the decision to add more oil to the market for a third time. But it will be a close call. If we see a new delay, we would not be surprised to see a three-month delay until the end of Q1 next year. In our view, delaying yet another month does not make sense. If OPEC+ goes along and confirms that production will increase in January, we expect Brent to drop to the mid to high 60s.  
We would also expect the cartel to say that quota compliance has improved. Finally, it might also be discussed if the UAE can get the promised hike in its production quota of 300,000 barrels per day next year. 
We do not believe OPEC+ will add more oil to the market in 2025. Given the outlook for non-OPEC+ supply and global demand, there is simply no room for more oil. This means we expect OPEC+ to stick to a "price strategy" that targets oil prices in the USD 70-80 range next year. We also expect OPEC+ to keep a high focus on quota compliance next year.
We still believe that global demand will surprise on the upside next year, rising between 1.25 and 1.5 mb/d based on lower interest and inflation globally in a situation where wage growth remains healthy, paving the way for a jump in real income growth. Stimuli to the US and Chinese should also boost demand. Finally, we believe the market is too optimistic on non-OPEC supply growth. Trump may be inclined to boost US oil production, but it might take longer than it it assumed in the market.
However, it seems that the geopolitical premium will stay low next year, and with an expected USD appreciation, there are undoubtedly also headwinds in oil prices in 2025. Hence, we now see Brent averaging USD 76 in 2025 compared to  USD 79 in our previous forecast. In the short term, we should expect a volatile market driven by risk appetite, USD FX and geopolitics. We see oil in a USD 70 to USD 74 range over the coming weeks. See forecast table below.

2.    Oil market reports painted a bearish picture of the oil market balance

Last week, the three major agencies in the oil market —the Organization of the Petroleum Exporting Countries (OPEC), the International Energy Agency (IEA), and the US Energy Information Administration (EIA)—released their latest oil market reports. They all painted an overall picture of weaker demand growth in 2025 and a potential rise in inventories, notably if OPEC+ goes through with the plans of adding more oil to the market.

OPEC report: Fourth consecutive downward revision to 2024 demand estimate

OPEC's Monthly Oil Market Report for November 2024 presented a more cautious outlook on global oil demand. The cartel revised its demand growth forecasts downward for both 2024 and 2025, citing economic slowdowns in key regions such as China and India. This latest revision for 2024 is the fourth in a row.
Despite the downward revision, OPEC anticipates a demand increase of 1.82 million barrels per day (bpd) in 2024 and 1.54 mb/d in 2025, well above those forecasted by the IEA and the EIA.
Importantly, this report comes ahead of the OPEC+ meeting on December 1, where we believe, as discussed above, that yet another delay in the plans to add more oil to the market will be announced.

IEA: The oil market will see an oversupply of 1 mb/d even without more OPEC+ supply

The International Energy Agency (IEA) raised its forecast for oil demand growth in 2024 by a modest 60,000 barrels per day (b/d) to 920,000 b/d, based on stronger-than-expected demand in the OECD area. 
However, the IEA remains quite negative on oil demand growth this year and next, with demand expected to grow by 1.0 million barrels per day (mb/d) in 2025. The IEA, therefore, estimates that next year, there will be an oversupply of up to 1 million barrels per day, even if OPEC does not bring more oil to the market. 

EIA: See modest growth in US production

On the one hand, the EIA report from the US Department of Energy was slightly optimistic. It estimated oil demand growth to be 1.0 mb/d in 2024 and 1.2 mb/d in 2025, which is higher than the IEA's forecast. On the other hand, the EIA downgraded its forecast for the Brent oil price in 2025 by one and a half dollars to USD 76. However, the forecast is above today's spot price and the forward curve, which trades at USD 71 for the calendar year 2025.
Note that the EIA bases its forecast on OPEC+ partially fulfilling its goal of adding more oil to the market in 2025. We do not expect an increase in production from OPEC+ in 2025. Hence, the oil forecast is more bullish than it may initially seem.

The report contained a slight upward revision to the US crude oil production forecast, which is expected to average 13.23 mb/d in 2024, with a further increase to 13.53 mb/d projected for 2025. However, this growth rate is slower than the crude oil production growth under Obama and Biden. That said, the agency has not considered any changes to regulations or the approval process following Trump's election.