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Oil Brief
10.12.2025
Oil prices have held in the lower $60s/bbl range over the past month, with geopolitical developments providing the main upside impetus against a backdrop of oversupply. Global oil demand growth is seen sluggish amid economic headwinds in key oil consuming nations, such as the US and China. The IEA forecasts demand to grow by only 800 kb/d in 2025-26, well below historical norms, and easily outstripped by forecasts of robust supply growth and gains from the Americas and OPEC+ especially. OPEC+ confirmed recently its decision to pause output hikes in Q1 26 to accommodate seasonal weakness and slow the pace of inventory builds. Looking ahead, barring any geopolitical or sanctions-related disruptions to oil flows, which could be amplified by eroding global spare production capacity, or stronger-than-expected global economic growth, oil prices are expected to average in the mid-60s, with risks skewed to the downside.
Markets: Rising supply, demand fears, and dwindling geopolitical risk premium weigh on prices in Q4
Oil prices are currently on a four-month streak of losses and have struggled to trade above the $60-65/bbl range, amid softening oil demand and supply gains from both OPEC+ and non-OPEC producers. (Chart 1.) Oil’s geopolitical risk premium has also waned in recent months, with the Trump administration orchestrating one ceasefire between Israel and Hamas and looking to conclude another between Russia and Ukraine. Lower prices likely factored into OPEC-8’s policy decision in November, reaffirmed in early December, to pause output hikes in Q1 2026. OPEC cited winter “seasonality” as its reason. Reflecting these dynamics, the Brent futures curve edged closer to contango, where the near-term oil price is lower than the future price, and hinting at higher incoming supply. Bearish speculator positioning has picked up in recent weeks and is closing in October’s record high, with ‘net length’ (the difference between the number of long and short contracts) dropping to its lowest point this year in Q3. (Chart 2.)
Oil demand: Growth to remain subdued amid a softer macroeconomic environment
Oil demand growth is expected to remain sluggish in the near term, weighed down by a weaker global economy affected by trade tariff friction and interest rate uncertainty. While the International Energy Agency (IEA) did raise its global oil consumption growth projection for 2025 and 2026 in its November report to around 800 kb/d y/y on average, the rate remains well down on historical norms. (Chart 3.) In contrast, OPEC maintained its robust oil consumption growth estimates of 1.3 mb/d and 1.4 mb/d for this year and next, respectively, citing transportation fuels and petrochemicals as key growth drivers.
The IEA also in November released its World Energy Outlook 2025. The annual publication, which maps scenarios of oil and energy use over the long term, surprised in its reinstatement of a ‘Current Policies Scenario’ that sees oil demand growing through 2050, having previously forecast ‘peak’ oil consumption by 2030. OPEC welcomed the turn, calling it a “rendezvous with reality” that vindicates its own long-held view on oil demand and removes the disincentive for sustained investment in oil and gas that it had warned against. In the IEA’s new analysis, assuming no shift from current policies, oil demand will continue increasing right through to 2050 (at an annual average of close to 500 kb/d), where it will reach almost 113 mb/d (+12.8 mb/d from 2024). Driving oil gains will be fuel use for transportation and petrochemicals (feedstock) in emerging markets. That said, increasing electrification remains oil’s most important headwind. OPEC sees oil demand rising to 2050, albeit settling at a higher level of 123 mb/d.
Supply: OPEC+ pauses output increases for Q1 2026; non-OPEC+ production keeps rising
OPEC+ announced a pause in its program of supply increases for Q1 2026, having aggressively unwound the first tranche of members’ voluntary cuts (2.2 mb/d from 2024) a year ahead of schedule and then proceeded to do the same with the second tranche of cuts (1.65 mb/d from 2023), albeit at a less rapid pace (+137 kb/d per month in October-December). That said, actual supply gains have trailed promised increases due to a combination of compensatory cuts and difficulties in raising production, with OPEC-8 only managing to return about 77% (2.0 mb/d vs 2.6 mb/d) of the barrels that were promised on paper. Iraq, especially, has had to demonstrate adherence to compensatory cuts given how much it had overproduced in previous months, but the UAE, Oman, Russia and Kazakhstan are also obligated to work through these cuts in 2026. With this in mind, and allied to capacity constraints, we think OPEC-8 will likely underdeliver on supply in 2026 even if it resumes unwinding cuts after Q1.
OPEC also announced in December the appointment of an independent third-party oil consulting firm to assess members’ maximum sustainable production capacity next year. The move is significant because members’ production baselines and quotas from 2027 will be based off this assessment, leaving producers inclined to inflate their actual production capacity to secure a higher quota little scope to do so. According to OPEC secondary sources, Declaration of Cooperation (DoC) production (OPEC+, includes quota-exempt Iran, Libya, and Venezuela) reached 43.0 mb/d in October, up almost 2 mb/d since April. (Chart 5.) The increases were driven mostly by OPEC-8 members Saudi Arabia (+1.04 mb/d), the UAE (+423 kb/d) and Russia (+412 kb/d).
US crude production was estimated to have exceeded 13.8 mb/d in November, according to the Energy Information Administration (EIA). (Chart 5.) However, for 2026, the EIA sees a first decline in US crude production since pandemic-affected 2021, albeit only a slight one of 13 kb/d, which would bring year-average output to 13.58 mb/d. Pessimism regarding the US oil sector has risen in recent months amid Trump administration policy uncertainty, which was cited in the recent Dallas Fed energy survey as the main damper on investment, especially as WTI prices hover near or below shale well-drilling breakeven prices. The IEA, though, still sees the US and others driving non-DoC supply growth of 1.2 mb/d in 2026 from an estimated 1.7 mb/d in 2025.
Market balance and price outlook: Expected supply overhang in 2026, downside risks predominate
Oil market fundamentals point to a widening surplus in 2026, from around 2.4 mb/d in 2025 to just over 4 mb/d, the IEA has estimated. (Chart 6.) Non-OPEC+ supply growth by itself (without factoring in OPEC+ increases) is anticipated to outpace oil demand growth. This is evident in the IEA’s “call on OPEC+”, the amount OPEC+ has to produce to balance the oil market, which for next year stands at 39.9 mb/d, roughly 3 mb/d below OPEC+’s actual production in October 2025. Pressure on oil prices (and the risk to our 2026 average forecast of $65/bbl) is predominantly to the downside, and more so if a peace deal is brokered between Moscow and Kiev. At this juncture, this still looks out of reach due to Putin’s demands, and even if an agreement materialized and oil sanctions were lifted, supply gains may not be as strong as anticipated given that Russian oil supplies were already flowing fairly freely (to China and India especially) – albeit at heavily discounted prices under the US/EU/G7 price cap – and given that production from any shut-in or idled wells will not be incentivized strongly amid current weak price signals. On the upside, the global economy could outperform expectations, perhaps due to an easing in trade frictions, or benefit from weaker oil prices. Also, expected supply gains may not fully materialize due to a combination of geopolitics-linked outages, lower oil prices, or production capacity constraints.
