The market got what it expected and needed with OPEC+ extending its cuts.

It reflects an acknowledgment that demand in certain key growth markets, notably China, remains disappointing. Furthermore, non-OPEC production increases are projected to satisfy most of next year’s global demand growth. This places a challenge squarely on OPEC+ to keep supply off the market for longer. Significantly, there was emphasis on adherence from certain countries, and the timeline for returning to full production capacity was extended to the end of 2026. Even with this extension, some forecasts still see stock builds for the most part, although a few predict a more balanced market next year. The consensus remains that OPEC+ faces challenges if demand disappoints, if a harsh winter does not deplete inventories, or if there are no major supply disruptions, such as increased sanctions on Iran or on shipowners. Most people agree that crude availability in the coming year will likely be ample, improving prospects for refining margins compared to the poor margins seen at the end of Q3 and earlier in this quarter.

How might geopolitical price dynamics evolve next year?

Tensions in the region have had limited impact because the market quickly assessed the threat to supplies as contained. Similarly, Syria falls into this category. Its oil output and exports have been minimal and informal for years, with major players long gone. A good indicator is tanker rates, which have dropped compared to the first half of this year and last year’s average. Even with disruptions in the Red Sea, shipping costs have stabilized, though bunker fuel markets remain healthy due to longer shipping routes. Ship building has also received a boost from higher for longer shipping rates. Sanctioned oil has found its way to market at near-full prices despite price caps and tightened supply chain measures, including insurance and banking. This reflects the market’s efficiency.

Outlook for Chinese oil demand as we move into Q1?

If prices drop materially from here, China may replenish its strategic and commercial inventories. They have the capacity to do so and could also bring additional refining capacity online, increasing demand. The country has also been adept at leveraging discounted supplies, particularly from Russia and sanctioned countries like Iran, a practice that has largely gone unchallenged. China’s story is increasingly about petrochemicals, with the massive investment in petrochemical capacity reflecting an expectation of significant growth. Oil demand growth remains strong for products like naphtha and LPG, in particular. Looking ahead, many are watching the Trump administration to see if there will be renewed tariff escalations, which could impact oil flows into China.