Opec+ likely to adopt a wait-and-see strategy for 2025

Alamy/H. Mark Weidman via Reuters

• Oil producers meet next week
• Waiting on Trump decisions
• No support for extra supply

Opec+ leaders have much to consider ahead of their meeting next week – little of it positive for flagging oil prices. 

First, there is the prospect of a second presidential term for Donald Trump as leader of the world’s largest oil producer and exporter; second, an economic downturn in China that shows no sign of easing; and, third, internal tensions around capacity and supply. Or more accurately: over-capacity and over-supply. 

Much is at stake. If the oil producers’ club unwinds its voluntary cuts at the December 5 meeting, some analysts think that crude prices could drop by around $20 a barrel. 

Brent has lost nearly 10 percent over the last year, trading around $72 a barrel. Saudi Arabia needs a benchmark price of $96 per barrel if it is to cover the cost of its government spending.

The group has already put off reversing cuts twice since October. Analysts agree it is likely to do so again. The Saudi, Iraqi and Russian energy ministers met on Tuesday in Baghdad to discuss market conditions and called for maintaining “stable and fair” prices. 

Ali Al Riyami, a former director of marketing at Oman’s ministry of energy and minerals, expects further delays to cuts reversal “maybe to the second quarter of 2025”.

“I think they [the Opec+ leaders] have realised that there is not much support from the market for any extra barrels,” Riyami says.

Opec+ output is expected to have fallen to 45 million barrels per day (bpd) this year from 46 million bpd in 2023. However, the reduced supply has failed to lift oil prices globally, says Patricio Valdivieso, vice-president at energy consultant Rystad Energy.

“While unwinding of barrels will certainly have a huge downward impact on oil prices, that is the only way to bring in check on non-Opec growth,” said Valdivieso.

The US, Brazil, Canada and Norway are expected to add a collective 1.5 million bpd to the market next year, while Rystad is forecasting global demand will grow by between only 1 million bpd and 1.25 million bpd – insufficient to mop up the extra supply.

Although US production has remained relatively flat this year, Donald Trump’s transition team is putting in place a wide-range energy package to boost oil drilling and gas exports.

The UAE has also been allocated an additional 300,000 bpd in quota in 2025 due to investing in increased capacity. State-owned Kuwait Petroleum Corporation (KPC) is also aiming to spend around KD10bn ($33bn) over the next five years to increase output capacity to 3.2 million bpd.

The only bright spot for market bulls is that the incoming Trump administration is expected to tighten sanctions on Iran and Venezuela. Iran exports around 1.6 million bpd; analysts say that US sanctions could remove around 1.2 million bpd from the market, giving some space for Opec production. 

But that is of little succour. The Trump administration has promised high tariffs on Chinese imports. These may boost US manufacturing but are also likely to dampen Asian demand.

“In the last two years, Opec+... has taken a cautious approach to oil supply on every occasion, so it would not be surprising if they kick the can again by delaying the taper into Q1,” Justin Alexander, director at US consultancy Khalij Economics, tells AGBI.

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Brian Pieri, founder of Energy Rouge says the group is likely to adopt a “wait and see” approach. “Opec knows patience is key. Moving too early risks oversupplying the market, while waiting too long could leave them scrambling to meet potential demand.”  

However Ole Hansen, Saxo Bank analyst, argues that Trump’s “Drill, baby, drill” mantra will not automatically lead to higher US production next year. 

“Production in the US is not, like in many other countries, determined by the government, but by the individual companies' ability to make a profit at a given price,” Hansen says.