In Asia, Korea posted notable growth in petrochemical demand, particularly naphtha. Japanese demand continued declines due to demographic challenges.
Emerging Asia, including India and parts of Southeast Asia, leads global growth. Strong growth in these countries compensated for slower demand in China, where economic challenges and a transition to cleaner technologies are prominent. Middle Eastern demand is bolstered by increased LPG/ethane usage, brought by petrochemical industries.
India is poised to lead global growth in 2024, with an increase of 200,000 b/d, or 3.6%. Gasoline and LPG/ethane are leading demand growth, driven by agriculture, travel, and government incentives. However, recent indicators suggest a slowdown in growth. Third-quarter 2024 GDP growth fell short of expectations at 5.4%, and the HSBC India Manufacturing PMI slightly decreased to 56.5 in November 2024 from 57.5 in October. Despite this, Indian demand growth is still projected to accelerate in 2025, increasing by 220,000 b/d, due to higher fuel consumption.
China has been the driving force behind the growth in global oil demand over the past 25 years. However, China’s demand contracted for much of 2024 due to structural economic challenges, including a property slump. Meantime, the increased penetration of renewable energy vehicles in place of gasoline consumption, along with LNG heavy trucks replacing diesel, has impacted the growth of oil consumption in China. A total demand increase of 140,000 b/d in 2024, reaching 16.6 million b/d, is primarily driven by rising petrochemical feedstock needs, with naphtha and LPG/ethane collectively up by 180,000 b/d. This trend is expected to continue into 2025.
Notably, the other two major institutions, the US Energy Information Administration (EIA), and OPEC, have significant differences in their oil demand assessments. According to OPEC’s November report, it believes global oil demand in 2024 could reach 104 million b/d, with an increase of 1.8 million b/d year-on-year (y-o-y), and projects demand in 2025 to reach 105.6 million b/d, increasing by 1.5 million b/d. The EIA estimates that global oil demand in 2024 could be 103.1 million b/d, rising by 990,000 b/d y-o-y, and in 2025, it could reach 104.35 million b/d, with an increase of 1.22 million b/d. Clearly, OPEC is the most optimistic about global oil demand growth, with significant overestimation for 2024 demand.
Global oil supply
According to IEA, annual global oil supply increased by an estimated 630,000 b/d y-o-y to 102.9 million b/d in 2024 and is projected to rise by an additional 1.9 million b/d in 2025 to 104.8 million b/d.
Notably, this estimate does not account for OPEC+’s return to higher production given the uncertainty about when the group will begin phasing out these cuts, despite some countries already producing above their targets.
Based on this assumption, non-OPEC+ is anticipated to contribute over 70% of the growth in 2025, primarily from increased supply in the Americas. OPEC+ could add about 460,000 b/d, mainly from additional NGL and condensate volumes, assuming no changes in OPEC+ voluntary crude reductions. Should OPEC+ start unwinding cuts in April 2025 to the new, slower schedule, the group could add a further 460,000 b/d to the market on average in 2025.
Among the core OPEC producers, including Saudi Arabia, Kuwait, and Algeria, fiscal break-evens have generally increased over the past 5 years, according to calculations of the International Monetary Fund (IMF). High fiscal breakeven levels are often viewed as supporting OPEC’s ongoing efforts to stabilize the oil market and prices.
Disrupted or sanctioned regions like Iran, Libya, and Venezuela continue to be significant variables in OPEC+’s supply dynamics. Under a second Trump term, Iranian oil supply risks are likely tilted towards reduction. The risks for Venezuela seem to trend downward from an already low supply. These risks of further reductions in Iranian and Venezuelan supplies in 2025 might open doors for other OPEC producers, particularly Saudi Arabia, to increase supply.
From March to April 2022, Russian crude oil production fell to 9.1 million b/d from 10 million b/d and recovered to 9.74 million b/d by June 2022. As of November 2024, production was 9.25 million b/d.
After 2022, Russia’s oil exports to Europe and North America significantly declined, while exports to other countries substantially increased, leaving its actual export volume largely unaffected. From January to September 2024, Russia’s total exports of crude oil and petroleum products were 7.6 million b/d, a decrease of 300,000 b/d compared with 2023.
Sanctions on Iranian oil by Europe and the US in recent years have focused on the Joint Comprehensive Plan of Action (JCPOA). Strengthened sanctions from late 2011 to mid-2012 led to a decrease in crude oil production by 991,000 b/d from January 2011 to October 2012. In July 2015, the JCPOA was concluded, and economic sanctions on Iran were eased, resulting in production increasing by 764,000 b/d from July 2015 to June 2016.
In May 2018, Trump announced the US withdrawal from the JCPOA, causing production to drop by 1.09 million b/d from May 2018 to January 2019. On Oct.1, 2024, with rising tensions between Israel and Iran, the US government announced further expansion of sanctions on Iranian oil and gas. If Iran’s production increases are reversed due to heightened sanctions, it might counteract the pressure on oil prices from OPEC’s production increases.
An escalation in the Middle East regional conflict has potential to reduce oil supplies, and regional political uncertainty can increase the risk premium. Meantime, although OPEC+ producers will likely continue to limit production in 2025, the potential for weakening commitment among OPEC+ producers to continue cutting production adds downside risk to oil prices.
Notably, the start-up of Saudi Aramco’s Jafurah gas project next year will also boost Saudi Arabia’s NGL supply. Kazakhstan’s 260,000 b/d Tengiz expansion will also come online in 2025.
Non-OPEC+ supply is projected to average 53.1 million b/d in 2024 and 54.6 million b/d in 2025, representing an increase of nearly 1.5 million b/d y-o-y each year.
Efficiency and productivity enhancements have significantly contributed to US shale’s impressive growth, with ongoing advancements in the crucial Permian basin. Currently, a rig operating in the Permian basin is about 4-5 times more productive than its counterpart from a decade ago.
Brazil’s underperformance in 2024 has been due to increased downtime, partly aggravated by a labor action at the environmental regulator, causing severe delays in permitting and operations. However, despite these challenges, significant offshore capacity expansion is anticipated to bolster Brazilian oil growth in 2025.
Canadian production growth will continue to benefit from the increased egress from Alberta via the Trans Mountain Expansion (TMX) pipeline. This 590,000 b/d pipeline expansion nearly triples the original Trans Mountain pipeline’s capacity, bringing the pipeline to a capacity of 890,000 b/d, significantly expanding access to Canada’s Pacific Coast, then the US West Coast and Asia.
After dipping 20,000 b/d in 2024, Norway’s total oil production in 2025 will be underpinned by the Johan Castberg project.
Global oil inventories
At the end of October 2024, OECD industry inventories fell to 2,778 million bbl, standing 91.6 million bbl below the 5-year average. By region, total oil inventories in the US, excluding the Strategic Petroleum Reserve (SPR), reached 1.24 billion bbl in mid-December, with commercial crude and Cushing inventories both at near 5-year lows. In Europe, Middle distillates industry inventories stayed higher than 5-year averages for 2024, pointing to a well-supplied market.
OPEC+ production cuts have contributed to global oil inventory withdrawals in second-half 2024. However, continued supply growth outside of OPEC+ will lead to an average inventory build for the entire 2025, putting downward pressure on crude oil prices.
According to conservative forecasts of OPEC’s crude oil production, along with the IEA’s predictions for demand and non-OPEC supply, global oil inventories are projected to rise by around 900,000 b/d this year.
