Everyone seems to be in agreement: global oil supply is greater than the demand for the fuel. The consensus stands despite the fact that some of the world’s biggest storage hubs are far from overflowing. Now, many forecast even more production coming into this oversupplied market. It would only hasten the inevitable rebalancing.
Kpler reported earlier this month that the amount of oil on tankers had gone up to the highest since 2020, reaching 1.3 billion barrels. But storage hubs in the Caribbean and South Africa are sitting half-empty, and inventories at Cushing, Oklahoma, are at their lowest since 2007. This is because, per Bloomberg, “the oil futures curve doesn’t currently make it profitable.”
What this seems to suggest is that demand might not be as weak as perceived, otherwise storage hubs would be seeing a lot of action right now. Instead, the oil sits on tankers, ready to set sail once it finds a buyer—and oil is finding buyers, including sanctioned oil.
India, for instance, continued to import Russian crude at a rate of over 1 million barrels daily this month, despite U.S. sanctions on the two biggest exporters that came into effect in late November. Reuters reported last week that the average daily so far this month has stood at 1.2 million barrels. That’s down from 1.77 million barrels in November, ahead of the sanctions, but nowhere near the sharp drop that many analysts forecast. Shipments to China are also on the rise, with the total for the four weeks to December 7 at 3.68 million barrels daily per data cited by Bloomberg.
Related: Oil Prices Jump 2% on Fear of Supply Disruptions in Russia and Venezuela
Iranian exports of crude, meanwhile, are on course to book the highest annual since 2018, Bloomberg reported last week, and even Venezuelan exports are on the rise—or at least they were, until the U.S. started seizing and blocking tankers. In the meantime, non-sanctioned oil production is also on the rise, fueling the perceived glut, at least for the time being.
Guyana has seen a surge on oil shipments since it started producing oil commercially, suggesting demand is rather healthy, glut and all. Brazil hit a new high in production in November, at 4 million barrels daily, again in defiance of the glut forecasts, and Canada is also ramping up, despite sliding prices. Production started growing in earnest following the launch of the Trans Mountain pipeline expansion, leading to a record high output this June. Production is set for further growth, to reach an estimated 6 million barrels daily by 2030, according to the Bank of Montreal—apparently regardless of prices.
Speaking of prices, most analysts expect them to remain weak in 2026, likely dropping even further down, especially if the war in Ukraine ends. This, however, will only hasten production adjustments to rebalance the market. Bloomberg suggested in its report from last week that Brent could see an average of below $60 next year for the first time since 2020 and the pandemic lockdowns. At the same time, the report said that low oil prices would at some point start hurting producing countries—and prompt a production adjustment reaction.
OPEC+ is a case in point here. The group decided to pause its production builds for the first three months of the new year in response to price weakness. More importantly, however, OPEC+ approved a new mechanism to reassess the maximum sustainable production capacities of all its producers, which will be used as a baseline for the 2027 production quotas.
OPEC+ and its leader, Saudi Arabia, say the new mechanism to assess how much any given producer can pump for a sustainable period of time is more transparent and fair for determining production levels from 2027 onwards. The context for the decision is plans by some OPEC producers to boost their oil production capacity in the coming years, apparently regardless of international prices.
This could mean one of two things. Either some of the world’s biggest oil producers are more resilient to unfavorable price movements despite their overwhelming dependence on oil revenues, or the perception of a glut is exaggerated, and demand is healthier than most reports suggest.
That said, the resilience of oil producers has its limits. Saudi Arabia, for instance, has been issuing more debt to cover its budget spending amid weaker oil prices. The kingdom has also considered dropping some parts of its Vision 2030 plan because the price tag has gone too high. Yet it is not just OPEC; Big Oil is also responding to the price weakness, with its usual knee-jerk reaction of massive layoffs. If prices remain weak, production plans will change as well.
Meanwhile, consumers and politicians, as Bloomberg noted in its report, are happy. Low oil prices mean low retail fuel prices, and those affect the prices of everything else. Cheap oil helps bring inflation down and stimulates higher consumer spending. We might as well enjoy it while it lasts because sooner or later, producers will start cutting output to boost prices.
By Irina Slav for Oilprice.com
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