We're on the Brink of Major Shifts in Oil Market, Rystad Oil Head Warns

We're on the Brink of Major Shifts in Oil Market, Rystad Oil Head Warns
We're on the brink of major shifts in the oil market, Mukesh Sahdev, Rystad Energy Global Head of Commodity Markets - Oil, stated in an oil market update sent to Rigzone.
Image by Afry Harvy via iStock

We’re on the brink of major shifts in the oil market, driven by the potential return of a protectionist Trump 2.0 era and an outward-looking, expansionist China 3.0 moving beyond export-led growth.

That’s what Mukesh Sahdev, Rystad Energy Global Head of Commodity Markets - Oil, stated in an oil market update sent to Rigzone by the Rystad team on Monday, adding that “these factors reflect an evolving approach … updated versions that signal significant transformations ahead”.

In the update, Sahdev also said OPEC+ has evolved through three phases of market management and outlined that its “emerging 4.0 policy” focuses on “price stability, crude market backwardation, and the expansion of refining and petrochemical capacity both domestically and internationally”.

Sahdev noted in the update that, as Trump 2.0 and China 3.0 take shape, OPEC+ is likely to proceed cautiously, extending production cuts for another one to two months with a strong focus on compliance, balancing crude exports vs product exports, while closely monitoring ongoing conflicts in Russia-Ukraine, Gaza, and Israel-Iran.

“These factors will play a key role in shaping the events of the coming year and have the potential to significantly influence the outlook for 2025,” Sahdev said in the update.

Trump 2.0, China 3.0

The update outlined that “news of key cabinet appointments in Trump 2.0 with a hawkish tariff-driven anti-China stance is adding a bearish bias” to Brent oil futures. It also noted that the Trump 2.0 rhetoric on increased drilling contrasts with the latest shale guidance striking a cautious tone on growth.

“It is unlikely Trump 2.0 will achieve 20 percent growth in production as in Trump 1.0. Even 10 percent is very ambitious and expected growth is less than five percent,” the update stated.

The update also warned that, “with potentially aggressive or confrontational plans as part of President Donald Trump’s second regime to push significantly higher tariffs on China, the hopes of a China-led global demand recovery are fading”.

“For 2025, China demand growth is projected to be less than 100,000 barrels per day,” it added.

The update stated that China 3.0 is likely to be an era of demand attrition domestically, “driven both by Trump 2.0 tariffs and continued acceleration of the energy transition”. It noted that “China 3.0 growth is more likely to come from the Chinese expansionist approach within Africa, Europe, and Latin America, while Trump 2.0 follows an isolationist approach”.

OPEC+ 4.0

As global demand recovery fades and geopolitical tensions rise, particularly with Trump 2.0’s proposed tariffs on China, OPEC+ faces limited options, a section on OPEC+ 4.0 in Rystad’s oil market update stated.

“The group has recently focused on enforcing stricter compliance with production cuts, especially from countries that have previously underperformed,” the section said.

“While speculation about another price war to target U.S. shale continues, the real concern is the pressure OPEC+ is putting on refinery margins. In response, OPEC+ members, particularly in the Middle East, have begun securing product market share by closing long-term crude supply deals in Asia-Pacific and expanding refining capacities, like the Fujian refinery in China and the Shaeen Petrochemical project in South Korea,” it added.

“Concurrently, refinery closures are accelerating globally, with China alone announcing the shutdown of 500,000 barrels per day of capacity. To balance the supply-demand equation, OPEC+ may need to cut product exports to stimulate crude demand from refineries worldwide,” it continued.

Rigzone has contacted the Trump transition team, OPEC, and the Chinese government for comment on Rystad’s oil market update. At the time of writing, none have responded to Rigzone yet.

2 Main Pillars to Trump Energy Agenda

In a research note sent to Rigzone on Friday by the JPM Commodities Research team, analysts at J.P. Morgan said there are two main pillars to Trump’s energy agenda, “implementing tax cuts and deregulation to boost domestic energy production, and exerting pressure on Iran, Venezuela, and possibly Russia to limit their oil exports and revenues”.

The analysts highlighted, however, that these two pillars are in conflict.

“While easing regulations on oil and gas could create opportunities for increased drilling, significant growth in production is unlikely during Trump’s second term - U.S. crude oil supply is projected to average about 13.2 million barrels per day this year, rising only slightly to 13.6 million barrels per day in 2025 and 13.7 million barrels per day by 2026,” they said in the update.

“This modest rise will be insufficient to offset the decline in oil exports due to a potential ‘maximum pressure 2.0’ campaign on Iran, the reimposition of oil sanctions on Venezuela, and the possible tightening of Russian energy sanctions,” they added.

“Additionally, GCC [Gulf Cooperation Council] countries are unlikely to compensate for the lost volumes, given their recently upgraded diplomatic ties with Iran, all of which could drive up oil prices and inflation,” the analysts warned.

“While Trump’s supporters may not expect him to fulfill every specific campaign promise, they trust he will uphold a broader commitment - to act in their interests - and we assess that, ultimately, any policies that could drive up oil prices will take a back seat to Trump’s key priority: keeping energy prices low,” they went on to state.

In the note, the analysts said oil’s supply-demand fundamentals may help Trump keep his promise of lower prices at the pump.

“Our forecast for 2025 remains unchanged since last November, with expectations of a shift from a balanced market in 2024 to a large surplus of 1.3 million barrels per day in 2025,” they stated in the note.

“Global oil demand growth will likely decelerate from 1.3 million barrels per day this year to 1.1 million barrels per day next year, as the last phase of the post-pandemic rebound dissipates and advancement in energy efficiency and the expansion of a decarbonized fleet gain momentum in China,” they added.

“Our 2025 price outlook remains largely unchanged, with an average Brent of $73 per barrel (down slightly from $75 previously), but we expect prices to end the year firmly below $70 (WTI $64). Importantly, this forecast assumes OPEC+ stays put,” they continued.

Rigzone has contacted the Trump transition team and the GCC for comment on JPM’s research note. At the time of writing, neither has responded to Rigzone yet.

US Gasoline Price

In its latest short term energy outlook (STEO), which was released earlier this month, the U.S. Energy Information Administration (EIA) projected that the U.S. regular gasoline price will average $3.32 per gallon in 2024 and $3.17 per gallon in 2025. In its previous October STEO, the EIA forecast that the regular gasoline price would average $3.33 per gallon this year and $3.22 per gallon in 2025.

According to the AAA Fuel Prices website, the average price of regular gasoline in the U.S. is $3.067 per gallon as of November 26. Yesterday’s average was $3.056 per gallon, the week ago average was $3.063 per gallon, the month ago average was $3.136 per gallon, and the year ago average was $3.253 per gallon, the site showed.

The highest recorded average price for regular gasoline was seen on June 14, 2022, at $5.016 per gallon, the AAA Fuel Prices site outlined.

GasBuddy’s live ticking average for regular gasoline in the U.S. was $3.050 per gallon as of 6.10am EST on November 26. The figure was four cents higher than yesterday’s average, 0.3 cents lower than last week’s average, 7.2 cents lower than last month’s average, and 19.7 cents lower than last year’s average, the site highlighted.

To contact the author, email andreas.exarheas@rigzone.com


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Andreas Exarheas
Editor | Rigzone