Oil Price Forecast 2025 Part Two: Demand Dynamics

Trust is a precarious commodity; once you lose it, it’s gone forever.

Yet the erosion of trust within the oil markets isn’t some new phenomenon that suddenly sprung up in our post-COVID world. The truth is that it’s been around for decades, and it’s not just one side at fault.

The veteran members of our investment community here have seen it firsthand. In the past, OPEC production quotas were a running joke within the industry; members would flippantly disregard them and pump more oil than “allowed” without a second thought.

Or perhaps your trust in OPEC degraded after members doubled their stated reserves practically overnight.

Not shady enough for you?

If that wasn’t enough, then maybe it was learning that the Saudis have been inflating output numbers from the mighty Ghawar oil field for only God knows how long. Remember, we were consistently told for DECADES that Ghawar’s output was humming along at 5 million barrels per day when the truth is that it was actually closer to 3.5 million barrels per day.

It took Saudi Aramco’s IPO for that one to leak out.

The Demand Delusion Continues

Difficult as it is to believe, OPEC isn’t the worst offender in this game of deception.

Last week, we took a look at the fate of the world’s crude supply in 2025 and how non-OPEC supply growth will be carried by Guyana, Canada, and Brazil.

Keep in mind that U.S. oil production growth will be limited next year, which is being optimistic. The EIA’s latest projections are that U.S. output will average 13.5 million barrels per day in 2025, which is only a 2.2% year-over-year increase compared with the 13.2 million barrels per day it’s expected to average this year.

Any hiccups in non-OPEC production means we’ll be relying even more on OPEC to follow through with plans to ease its production curtailments. As you might imagine, it’s hard to see OPEC putting more crude onto the market when prices are around $70 per barrel.

When the International Energy Agency released its World Energy Outlook 2024 yesterday, it was an overly optimistic attempt to put downward pressure on crude prices… but that’s about par for the course, isn’t it?

After all, we’re talking about the same IEA that is projecting a peak in oil demand before 2030, followed by a return to 2023 levels around 99 million barrels per day by 2035.

Today, it’s well over 103 million barrels per day.

What’s interesting is that however bearish the IEA is on oil demand going forward, the market is telling us otherwise.

But if demand was as weak as media headlines tell us, then why are global oil inventories so low? The truth is that global crude inventories are far lower than you might think; this summer, inventories reached 120 million barrels, which is 4% below the 10-year average.

If this continues, I think we’ll see OPEC delay any planned output increases, which will send those massive oil shorts on Wall Street rethinking their position.

And remember, this is all assuming that geopolitical volatility doesn’t boil over into open conflict like it did in Ukraine two years ago.