Oil prices fell on Thursday, a day after OPEC+ delayed its planned output increase by three months to April 2025, and extended the full unwind of production cuts by a year until the end of 2026. The organization also unveiled several other key decisions including the extension of baselines for all countries by a year to end-2026. Brent crude for February delivery fell 1.3% to trade at $71.16 per barrel at 11.30 am ET while WTI crude for January delivery fell 1.5% to $67.32 per barrel
And now commodity analysts at Standard Chartered have weighed in, saying the lackluster response by oil markets suggests that traders have not fully digested the impact of the new unwinding schedule by OPEC+. According to StanChart, by both delaying the start of voluntary cut unwinds and flattening the slope of the m/m increases, the organization has effectively removed a large amount of oil from the 2025 plan. The analysts point out that the previous plan for voluntary cut unwinds and the UAE target increase would have added a cumulative 496.3 mb to the market in 2025; however, the new schedules will now add just 191.3 mb, good for a 836 thousand barrels per day (kb/d) cut for the whole year. StanChart says the market has not priced in the full extent of how much oil has been removed from the plan.
Negative Sentiment
Last week, StanChart correctly predicted that, given current negative market sentiment and an overly pessimistic market view of 2025 balances, tactically the best choice for ministers was to delay any unwinding of voluntary cuts to the end of Q1 and perhaps even further out.
According to StanChart, much of the negative sentiment that has dominated oil markets over the past couple of months can be chalked up to misapprehensions about the tapering mechanism for the voluntary cuts made by eight OPEC+ countries. Many traders are worried that the balance of oil demand growth and non-OPEC+ supply growth might not offset the scale of restored OPEC+output, leaving oil markets oversupplied. However, the experts have pointed out that this assumption flies in the face of continued reassurances from OPEC+ members that the tapering would be fully dependent on market conditions rather than being automatic.
Trader focus has been on the question of how many barrels could be returned before a surplus emerged; however, positioning and price dynamics imply that the answer to that question is zero.
StanChart says the delayed return of more barrels to the market does not necessarily mean that OPEC felt the physical market could not absorb the oil, but rather reflects its awareness that extremely pessimistic 2025 oil balance predictions have viewed the tapering through that lens. StanChart says the latest announcement by OPEC strengthens the case that the pace of tapering will be market-dependent and not automatic as traders fear.
Further, president-elect Trump’s promise to ramp up American oil production is certainly bearish for the markets. A new survey from law firm Haynes Boone LLC has revealed that banks are gearing up for oil prices to fall below $60 a barrel by the middle of President-elect Donald Trump’s new term, Bloomberg reported on Monday. The survey of 26 bankers showed that they expect WTI prices to drop to $58.62 a barrel by 2027, more than $10 lower than current prices.
Trump says he’ll push shale producers to ramp up output, even if it means operators “drill themselves out of business.” However, it’s not clear he intends to accomplish this feat since U.S. oil is produced by independent companies and not a national oil company (NOC). Exxon Mobil’s (NYSE:XOM) Upstream President Liam Mallon recently dismissed the notion that U.S. producers will dramatically increase output under a second Trump term.
“I think a radical change is unlikely because the vast majority, if not everybody, is primarily focused on the economics of what they’re doing,” Mallon said last week at a conference in London.
According to StanChart, U.S. oil and gas output is currently ~40.7 mboe/d. U.S. oil and gas output has grown by an average of about 123 kboe/d per month since 2015, meaning adding Treasury Secretary nominee Scott Bessent’s 3 mboe/d target increase would take less than 25 months. The commodity experts have noted that 41% of the post-2015 increase has come from natural gas, 28% from natural gas liquids (NGLs) and just 28% from crude oil. StanChart has predicted that the crude oil element of the next 3 mboe/d increase is likely to be significantly less than 20%, with natural gas likely to be the main instrument for meeting the new administration’s energy goals as crude oil output growth becomes increasingly difficult.
