They are shifting to Middle Eastern grades, which signals rising concern about stricter enforcement of sanctions under a potential new US presidency. This trend should support benchmark grades because many Iranian barrels were sold on the grey-black market. However, this is more of a story for 2025. The other impact of a Trump administration for China, is potentially higher tariffs next year. China’s export sector has been one of the strongest-performing areas of the economy this year, so increased tariffs could pose a significant challenge to this strength going forward.
Is China’s government fully committed to its stimulus strategy?
We expect more stimulus to come in Q1, but gauging the government’s level of commitment is tricky. It’s fair to say that China’s oil demand is unlikely to return to pre-COVID levels. There have been significant structural shifts in the economy, making it less oil-intensive. For instance, there has been a notable switch from diesel to LNG for heavy goods vehicles. Additionally, while the EV transition has been slightly less impactful this year compared to LNG, it’s still a critical factor. We anticipate Chinese gasoline demand will peak within the next few years. That doesn’t mean global oil demand won’t grow, other economies, such as India and developed nations across Asia, are expected to drive growth in the near to medium term.
Does the market believe OPEC+ can achieve better compliance in 2025?
Russia has been compliant for several months now. Kazakhstan, while not fully compliant, has improved due to maintenance activities. Iraq, however, continues to face significant compliance challenges. When it comes to their next decision, OPEC+ will, as always, prioritize metrics like whether global stock builds are shrinking or rebuilding and whether inventories remain below the five-year average. There’s a strong sense within the group that adding supply in Q1 may not be prudent, it’s typically the weakest period for the oil market seasonally. The most likely outcome will be a further delay in the planned production increases. This delay might extend beyond just one month, it could potentially be pushed back by several months, possibly into Q2. However, achieving agreement on such an extended delay might be challenging, as it would require a broader consensus within the group.
How is the market interpreting the US decision to allow Ukraine to use longer-range missiles into Russia?
It certainly raises the possibility of renewed strikes on Russian energy infrastructure. It’s not a silver bullet, though. The US administration has significantly restricted the use of these missiles to specific regions without Russian refineries. For now, Russian refineries, which struggled earlier this year due to attacks, are beginning to ramp up operations again. Consequently, the peak tightness in Atlantic Basin products linked to Russia appears to be behind us. We’re also seeing crude exports decline, a sign that Russian refineries are recovering and consuming more of their crude domestically.