The US elections, events in the Middle East, subdued demand in China, the increase in the key rate – all these events could not but affect the oil market and will continue to influence it in 2025. Anna Butenko, senior analyst at Pervaya Management Company, reflects on expectations, reality, their correspondence with each other and the strategy for investing in the oil market.
Oil Golden Mean In 2025, a good growth rate in oil demand is expected – approximately at the level of historical averages. Forecasts from global agencies estimate a growth range of 1–1.5 million barrels per day, or about 1.2% growth year-on-year, which is approximately in line with the average rate of the last 20 years.
The main growth drivers remain Asian countries. However, China's role will significantly decrease, giving way to India and other Asian countries, which together will increase demand by 0.48 million barrels per day (according to the US Department of Energy). At the same time, the entire demand can be met by an increase in production from countries outside OPEC+: the USA, Canada, Brazil, and Guyana together can provide 1.2-1.5 million barrels per day of growth. And this leaves the barrels that OPEC+ would like to return to the market as a source of potential overhang of "extra barrels".
At the moment, OPEC+ spare capacity is at a very high level - more than 6 million barrels per day. This circumstance continues to put pressure on quotes and does not allow them to rise higher. OPEC+ is aware of its role as a balancer on the market and will probably continue to postpone the weakening of quotas and is unlikely to decide to significantly increase supplies next year. At its last meeting in early December, the organization postponed the start of a gradual increase in production for the third time in a row, this time by one quarter. In my forecast, I include a price level close to the current one – in the range of $70–80/bbl. The probability that the average price level in 2025 will exceed the expected $80–81/bbl this year is quite low.
Risk factors The key risk factors for oil prices next year will be the pace of demand growth in Asian countries. The main negative surprise in 2024 was the disappointing demand in China, its growth has slowed and even gone into negative territory since mid-year.
In 2025, most global energy agencies forecast moderate demand growth in China. Analysts expect that the economic stimulus measures taken by the Chinese government will have an effect. However, the threat of unpleasant surprises still remains.
Another risk factor is discipline within OPEC+. Not all members of the alliance can agree to limit production in order to maintain prices at a comfortable level for producers to the detriment of their market share.
The East is a delicate matter Geopolitical risks can make their own adjustments to the development of the oil market. However, more than a year after the start of the conflict, it seems that the market has already developed a certain immunity to the situation in the absence of a real effect from supplies from the region. In addition, even if we assume an escalation with an effect on oil supplies, the price jump is unlikely to be long-term. OPEC+ will be able to cover the missing barrels by increasing supplies in a fairly short time.
A separate topic is Saudi Arabia. The news reported that the country plans to significantly increase oil production in 2026-2027, and in 2028 to increase production to 12.3 million barrels per day.
After several consecutive quota cuts, Saudi Arabia has more than 3 million barrels per day of spare production capacity. Of course, the Saudis would like to return these volumes to the market. However, they are unlikely to do so at the expense of prices. The Kingdom is clearly interested in maintaining prices at an adequate level. This is confirmed by the fact that in the past, when there were signs of weak demand and prices fell below $75 per barrel, the Saudis reduced production plans. Although the Western press actively discussed the possibility of a change in Saudi Arabia's policy and its readiness to abandon the targeting of a higher oil price in the name of restoring market share, it seems that such abrupt movements, threatening a collapse in prices, would be irrational. If we look at the Kingdom's oil and gas revenues in 2023, despite the reduction in production volumes, they are still 30% higher than the average level of the previous six years. According to the data for the first nine months of 2024, they also grew by 16% year-on-year, which demonstrates the justification of the country's current policy. Therefore, it seems reasonable to assume that the Kingdom will continue to apply a balanced production policy, measuring the desire to increase production with the current balance of supply and demand in the market, and perhaps postpone a significant increase in volumes until the growth of supply from non-OPEC+ countries slows down.
Drill, baby, drill The possible impact of the policy of the recently elected American President Donald Trump on the projected oil prices is quite multidirectional. On the one hand, the famous phrase "Drill, baby, drill" was heard, expressing the focus on reducing regulatory barriers for the oil and gas industry and easing restrictions on the climate agenda, which in theory should lead to increased investment and increased production. Trump also has plans to impose significant trade barriers with China, which could hurt the economy of the second-largest oil consumer and negatively affect demand.
On the other hand, Trump's inauguration may promise stricter control over the implementation of sanctions by Iran and Venezuela. During the presidency of Joe Biden, these countries were able to increase production by 1.4 million and 0.4 million barrels per day, respectively, and increase exports in circumvention of sanctions. A new round of tightening sanctions could deprive the market of significant volumes of exports from these countries.
As for the potential for significant production growth in the United States thanks to Trump's policies, it is worth remembering that the States have already been actively increasing production over the past 15 years and during Biden's presidency, growth has not slowed down at all. The main driver of production growth at the moment is the Permian Basin (a large sedimentary oil and gas basin in the southwestern United States. - Vedomosti&). It has not yet reached its peak, but is approaching it. To significantly increase production, it will be necessary to commission more and more new wells, the breakeven price of which may exceed $65 per barrel (WTI). Producers are unlikely to drill at a loss, so a drop in prices due to increased production will serve as a natural balancer that will limit the potential for increased production in the United States.
Investors should take note Despite the expected decline in oil prices, the weakness of the ruble should support the profits of Russian exporters next year. Taking into account the forecast of macroanalytics of the First Management Company for the ruble exchange rate, expectations for the ruble price of oil in 2025 exceed the average figures for the current year by 4-6%.
Given high interest rates, our advice to investors is to focus on stocks of companies with a low debt burden, and even better - with a net cash position on the balance sheet, as well as with a predictable and stable dividend policy. Our favorites are the shares of Lukoil and Tatneft. Both companies have a net cash position on the balance sheet, and both strive to pay out all free cash flow in the form of dividends. This translates into a relatively high dividend yield of 16-17%.
What about the sanctions? The "Trump rally" (the rise of the Moscow Exchange index after the US presidential election - Vedomosti) on the Russian stock market in early November clearly demonstrated the hopes of market players that the inauguration of the newly elected US president would speed up the end of the conflict. However, even a potential ceasefire or freezing of the conflict does not mean that the existing sanctions on Russian raw materials and related companies will be lifted in the near future.
In any case, the negative impact of sanctions on Russian oil producers is not as significant as in other sectors of the economy. Russian producers have quite successfully reoriented export flows to the East. This increased transportation costs, but did not significantly affect overall export volumes. Discounts for the "sanctions" on Russian oil have also noticeably decreased: the discount of Russian Urals to the benchmark Brent has decreased from peaks of $30-40 per barrel. up to $10–11/bbl.
The main limiting factor for oil supply volumes from Russia is currently cooperation with OPEC+ and the joint efforts of participants to maintain prices at a comfortable level. It is unlikely that the lifting of sanctions will significantly affect the overall volumes of Russian oil supplies.
Source: Vedomosti, Issue of 12/26/2024.