Benchmark crude oil prices fell in February and early March as concerns mounted over the outlook for the economy and global oil demand growth amid escalating trade tensions and as OPEC+ announced it would start unwinding production cuts in April. Against this backdrop, discussions started on the potential for an initial ceasefire and an eventual peace deal in Ukraine. ICE Brent futures declined by $11/bbl over the past eight weeks, trading near three-year lows around $70/bbl at the time of writing.
The macroeconomic conditions that underpin our oil demand projections deteriorated over the past month as trade tensions escalated between the United States and several other countries. New US tariffs, combined with escalating retaliatory measures, tilted macro risks to the downside. Recent oil demand data have underwhelmed, and growth estimates for 4Q24 and 1Q25 have been marginally downgraded to around 1.2 mb/d, with data for both advanced and developing markets coming in below projections. Nevertheless, global oil demand growth is still expected to average just over 1 mb/d this year, up from 830 kb/d in 2024, boosted in part by lower oil prices. Asian countries will account for almost 60% of gains, led by China where petrochemical feedstocks will provide the entirety of growth as demand for refined fuels reaches a plateau.
While the actual supply boost from the gradual unwinding of OPEC+ production cuts in April may end up being less than the nominal 138 kb/d increase, global oil supply is already on the rise. In February, it jumped 240 kb/d as Tengizchevroil ramped up its long-delayed Tengiz expansion project, pushing Kazakh output to all-time highs. Elsewhere, Iran and Venezuela boosted flows ahead of tighter sanctions. Venezuelan supply is expected to decline from April, when Chevron’s General License to operate in the country expires. At the same time, the increase from the eight OPEC+ members party to the voluntary cuts agreed in November 2023 may be less than 50 kb/d, as only Saudi Arabia – and to a much lesser extent, Algeria – have room to raise production to the new targets. The other members party to the deal collectively overproduced by 1.2 mb/d in February, according to IEA estimates.
The United States is currently producing at record highs and is forecast to be the largest source of supply growth in 2025, followed by Canada, Brazil and Guyana. Proposed US tariffs on Canada and Mexico, set to take effect on 1 April, may impact flows and prices from the two countries that accounted for roughly 70% of US crude oil imports last year. Meanwhile, the latest round of sanctions on Russia and Iran has yet to significantly disrupt loadings, even as some buyers have scaled back purchases.
Risks to the market outlook remain rife and uncertainties abound. Our current balances suggest global oil supply may exceed demand by around 600 kb/d this year. If OPEC+ extends the unwinding of output cuts beyond April without reining in supply from members currently overproducing versus their targets, another 400 kb/d could be added to the market. Equally, the scope and scale of tariffs remains unclear, and with trade negotiations continuing apace, it is still too early to assess the impact on the market outlook.