US Sees Small Global Oil Deficit in 2025, in Outlook Reversal
Tuesday, Dec 10, 2024 1:14 pm ET
4min read In a surprising turn of events, the US Energy Information Administration (EIA) has revised its outlook for 2025, now predicting a small global oil deficit instead of the previously forecasted surplus. This reversal, driven by changes in global oil production and demand, has significant implications for crude oil supply and prices. Let's delve into the factors behind this shift and explore its potential consequences.
The EIA's latest Short-Term Energy Outlook (STEO) projects a 0.6 million barrels per day (b/d) deficit in 2025, a stark contrast to its previous forecast of a 0.6 million b/d surplus. This reversal is primarily attributed to three key factors:
1. Slower demand growth: The EIA reduced its forecast for global liquid fuels consumption growth in 2025 from 1.8 million b/d to 1.3 million b/d, mainly due to downward revisions in OECD countries' demand.
2. Faster production growth: The EIA increased its forecast for global liquid fuels production growth in 2025 from 0.5 million b/d to 2.0 million b/d, driven by strong production growth outside of OPEC+.
3. OPEC+ production cuts: The EIA expects OPEC+ producers to keep production below their announced targets for much of 2025, which will limit the supply increase and contribute to the deficit.
This shift in the EIA's outlook could influence OPEC+ production decisions and crude oil supply. With crude production outpacing demand, inventories are expected to build modestly in 2025, placing downward pressure on crude oil prices. However, heightened tensions in the Middle East and other developments could disrupt global oil trade flows and drive up prices. OPEC+ producers may adjust their production levels in response to these uncertainties, potentially leading to a more balanced or even a surplus market in 2025.
The expected increase in US oil production in 2025, averaging 13.44 million b/d, will also impact the global oil deficit and crude oil prices. This growth, driven by increases in well efficiency and despite fewer active drilling rigs, will help offset the slowdown in global liquid fuels production due to OPEC+ production restraint and decelerating US tight oil production growth. As a result, global inventories are expected to build modestly in 2025, placing some downward pressure on crude oil prices. However, several uncertainties, such as geopolitical tensions and producer investment, could still affect future oil prices.
In conclusion, the EIA's revised outlook for 2025 highlights the dynamic nature of the global oil market, with changes in production and demand driving a shift from a surplus to a deficit. This reversal has significant implications for crude oil supply and prices, and OPEC+ producers may adjust their production levels in response to these uncertainties. As investors, it is crucial to stay informed about these developments and adapt our portfolios accordingly.
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