The return of President Donald Trump to the White House this year has unleashed a new stage of financial market volatility, which in turn is causing oil markets to whiplash.
While practically everyone in the upstream sector was expecting oil prices to be volatile in 2025, not all in the industry can cope with the rate at which they are declining.
Trump’s support for lower oil prices is not surprising. To him, this means lower prices at the gasoline pump for American consumers.
In January when Brent was hovering around $80 a barrel, Trump called on Opec and Saudi Arabia to lower oil prices, a request that was not met with a knee-jerk reaction by the oil exporting group.
Since then, the near-daily news of US tariffs on various countries including China has been one of the major forces driving sell-offs on global stock exchanges – and this has had a knock-on effect on oil markets. Today, there is a strong positive correlation between US stocks and crude oil prices, which usually means that sentiment around demand forecasts is driving valuations.
Prices under $70 a barrel are prompting many companies in the US to reexamine growth plans
This strong correlation was also present during the Covi19 pandemic and the global financial crisis, both of which were of course characterised by high volatility.
Brent prices are currently in the mid-$60s range but there is potential for prices to climb to $70 a barrel if strategic stock buying by the US and China picks up. If Trump walks back from his tariffs announcements this again may reintroduce positive sentiment.
However, according to the most recent projections by independent markets insights provider Kpler, Brent prices are likely to remain in the mid-$60s until the end of the year – with continued volatility.
Looking more broadly at demand, the consensus is that growth in 2025 will be modest. At the start of the year, global demand growth for oil was estimated at 900,000 barrels per day (bpd), according to Kpler. Since then, growth has been downgraded to 700,000 bpd due to the adverse potential of US tariffs on slowing economies.
Other agencies and institutions such as the IEA and even Opec have recently downgraded their forecasts for the same reasons. Overall, Kpler expects markets this year to lean towards equilibrium, with a possibility of slight oversupply of around 100,000 bpd by the end of year.
On the supply side, this level of uncertainty is expected to impact spending upstream, especially among US shale producers. West Texas Intermediate prices under $70 a barrel are prompting many companies in the US to reexamine growth plans.
This month, the US Energy Information Administration (EIA) updated its long-term forecast. Its base case shows US crude oil peaking at 14 million bpd in 2027 and then declining slowly to 11.3 million bpd by 2050. The new base case contrasts with the EIA’s 2023 forecast, which saw US crude output peaking around 13.3 million bpd in 2028 and staying steady after that.
Keeping a watchful eye on all these factors is Opec+. The group has so far this year managed to surprise traders with decisions to ease supply curbs and add more oil into the market during turbulent times.
The topic of managing oil prices is seen as taboo within the group, which in public maintains a stance that its priorities are about balancing demand and supply, and creating a favourable environment to uphold energy security.
Given the fact that US tariffs are playing a dominant role in influencing prices, the focus of some Opec+ members has now shifted to tightening compliance within the group and restoring a sense of fairness for members who have been sticking to their quotas.
The gradual easing of the voluntary cuts will help members like Saudi Arabia regain some market share in Asia, while countries like Kazakhstan, Iraq and Russia are required to offer “compensation cuts” to make up for overproduction.
If Opec+ manages to bring compliance under control, this will deliver a stronger and more credible message to the market if and when the group decides that it is time either to pause incremental increases in supply or to introduce new cuts.
Amena Bakr is head of Middle East energy & Opec+ Insights at Kpler
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