"Oil Advances as US Joins Chorus Slashing Global Glut Forecasts"

The oil market is experiencing a significant shift as the United States joins other countries in slashing global oil glut forecasts. This move comes at a time when the world is already grappling with a surplus in oil production, driven by economic stagnation in major markets like China and Germany. The decision by the U.S. to revise its forecasts is expected to have far-reaching implications for oil prices, refining margins, and the overall dynamics of the global oil market.

Market Dynamics

The current surplus in oil production has been a result of increased upstream activity in non-OPEC countries, particularly the United States and Guyana. This has led to a situation where oil production has outpaced demand, keeping benchmark prices such as WTI and Brent far below 80 U.S. dollars per barrel since summer 2024. The trend is expected to continue well into 2025 and 2026, as greater upstream activity continues to flood the market with more oil.

The U.S.'s decision to join other countries in slashing global oil glut forecasts could signal a shift in market sentiment. This could lead to a reduction in upstream investing activity, which is currently robust despite lower crude prices. A February 2025 forecast sees more than 60 oil and gas extraction projects reaching final investment decision (FID) that year. If the U.S. and other countries reduce their forecasts, this could lead to a decrease in the number of projects reaching FID, thereby reducing future production levels.

Impact on Oil Prices and Refining Margins

The revised forecast for 2025 indicates several potential short-term and long-term effects on oil prices and refining margins.

# Short-Term Effects

In the short term, the surplus oil production is expected to keep oil prices low. The declining profits for refiners, due to lower oil prices, have led to a slew of refinery closures across Europe and the United States. These closures may buoy refining margins in the near term by reducing supply and increasing demand for the remaining refineries. However, this relief could be short-lived due to weak consumption outlooks and the continued addition of refining capacity in Asia.

# Long-Term Effects

In the long term, the increased upstream investing activity in 2025 could lead to a stabilization or even an increase in oil prices. However, the same forecast notes that such pursuits will be markedly lessened from 2026 onward, which could lead to a stabilization or even an increase in oil prices in the future. The long-term outlook for refining margins remains uncertain. While the short-term closures of refineries may provide some relief, the weak consumption outlooks and the addition of refining capacity in Asia suggest that refining margins may continue to decline in the long term.



The US's Role in the Global Oil Market

The increased upstream investing activity in 2025 is expected to have significant implications for the global oil market dynamics and the US's role within it. The US, in particular, is poised to play a pivotal role in this dynamic. The country's significant upstream activity, coupled with its robust investment in oil and gas extraction projects, will contribute to the global oil surplus. This increased production capacity will solidify the US's position as a major player in the global oil market, potentially challenging the dominance of OPEC countries. However, the forecast also notes that such pursuits will be markedly lessened from 2026 onward, suggesting that the US's influence may be temporary unless sustained investment continues.

Moreover, the increased upstream activity in the US could also impact the refining sector. With more oil available, refiners may face increased competition and potentially lower margins, as seen in the declining refining margins since the oil price surge of 2022 and 2023. This could lead to further refinery closures, particularly in regions with outdated infrastructure and stricter fossil fuel exit strategies, such as Europe. In contrast, the US, with its more favorable regulatory environment, may see continued investment in refining capacity, further enhancing its role in the global oil market.

Conclusion

The U.S.'s decision to join other countries in slashing global oil glut forecasts is a significant development in the global oil market. While it may lead to a reduction in upstream investing activity and M&A activity, thereby reducing future production levels and potentially alleviating the current oil surplus, the long-term effects on oil prices and refining margins remain uncertain. The US's role in the global oil market is set to become even more prominent, but sustained investment will be crucial to maintain this position. As the market continues to evolve, investors and industry stakeholders will need to stay vigilant and adapt to the changing dynamics.