Based on my supply and demand forecasts for 2025, the oil market is expected to be well supplied in the first and second quarters of next year, even if OPEC+ does not increase production (red line/bar). However, a tight market is anticipated in the third and fourth quarters.
Maintaining current production levels into the first half of 2025 might not suffice for OPEC+’s market management strategy. The projected oil market balance in the first half of 2025 under the base scenario should alert OPEC+ to the risk of losing market control, which could lead to a contango market structure and push prices below $70.
If OPEC+ begins to roll back its voluntary cuts by 180 tb/d each month starting in January (yellow line/bar), the situation for oil prices could worsen significantly.
To keep oil prices within the $71-76 range in the first half of 2025, OPEC+ may need to consider an additional cut of no less than 0.7 mmb/d from current production levels.
This additional cut could be reintroduced to the market (along with all or part of the previously planned 180 tb/d) in the second half of 2025, depending on demand developments in the US and China. To maintain market control, announcing the extra cut should be paired with a plan for production increases in the second half of 2025 to sustain price backwardation.
An early announcement of a production ramp-up plan for the second half of next year could also help mitigate the political and security challenges associated with increasing production by Saudi Arabia if tighter sanctions are imposed on Iranian oil exports. In case such sanctions take effect at the end of the first quarter of 2025, Iranian oil production could decrease by 800 tb/d by the end of 2025, reaching approximately 2.3 mmb/d.
Under sanctions scenario, the decline in Iran’s oil production is expected to begin gradually, peaking between the fifth and seventh months (August through October). As a result, global stock drawdown could reach approximately 2.3 mmb/d in the third quarter and 2.0 mmb/d in the fourth quarter. This situation provides ample room for OPEC+ to start rolling back its voluntary cuts.