Direction of the oil price 2025

[TheMotorcycleBoy]

Over in the Zelensky thread I asserted that one of DJTs possible motivations for his bromance with Russia, is getting oil down. Perhaps as a deflationary lever. GS replied to me over as follows:

Mr. Drill Baby Drill wants cheap oil, to bring down inflation.

Thing is the US producers don't this. They want to buyback shares against a high oil price.

Enter the removal of sanctions with Russia, and yeah, getting Urals oil back on the World Market.

Yeah, may be so, but you know what? They're not going to get cheap oil. However they do it. Oil has bottomed and $60 is as good as it gets IMO. Then it's steadily upwards through to the next round of "peak oil" predictions.

GS

I'm interested in where people here see the direction over the next year. Will DJT help more Urals oil enter the market place and bring down price, or will MIBA (Make Iran Broke Again), move things in the other direction?

MCB

[GoSeigen]

Over in the Zelensky thread I asserted that one of DJTs possible motivations for his bromance with Russia, is getting oil down. Perhaps as a deflationary lever. GS replied to me over as follows:

Yeah, may be so, but you know what? They're not going to get cheap oil. However they do it. Oil has bottomed and $60 is as good as it gets IMO. Then it's steadily upwards through to the next round of "peak oil" predictions.

GS

I'm interested in where people here see the direction over the next year. Will DJT help more Urals oil enter the market place and bring down price, or will MIBA (Make Iran Broke Again), move things in the other direction?

MCB

There are some real experts on oil dynamics here I don't think I'm necessarily qualified to do much more than trumpet my opinion as I did in that quote. SalvorHardin made a lot from oil stocks and may have a view. EmptyEnd too if he can be coaxed back or is already present under cover.

My amateurish observations are these:

-it's not Urals oil entering the market place that matters but gross world production and demand. Is there any reason to think the Ruskies are producing less than they are able to in the circumstances? And if the price drops how does that incentivise further production, surely the opposite?
-There is a natural floor on crude prices. Other posters might be able to describe the mechanics better than me but as I see it, when the price drops more wells become unprofitable and are shut down. This puts upward pressure on prices again. It's kind-of like the zero lower bound for monetary rates. You could google for views on where the bottom for prices is likely to be but I've thrown my hat in at around $60.
-Certain self-important people might have an inflated view of their ability to influence the oil price. I disagree, over the longer term at any rate. One also has to doubt the chosen methodology of protectionism and trade wars. I expect the individual involved has as much clue about economics as how to string a coherent sentence together or the history and geography of landlocked African kingdom states.
-I see no evidence of a drop in future world fossil fuel demand. The opposite if anything, especially given ongoing hatred of nuclear power. I suppose a devastating world war or disintegration of the US economy might change my view, but is it not the case that crude oil storage in the US was completely empty last year? Has that changed? I'm interested but don't follow oil trends closely enough yet.

GS

[SalvorHardin]

There are some real experts on oil dynamics here I don't think I'm necessarily qualified to do much more than trumpet my opinion as I did in that quote. SalvorHardin made a lot from oil stocks and may have a view. EmptyEnd too if he can be coaxed back or is already present under cover.

Unfortunately I don't have a credible view on the oil price (some might say that I never have!). Whilst I made a fortune in the 2000s from oil companies, that was in mostly because of the "wisdom of crowds" that was the TMF Oil and Gas community, rather than any skill in predicting the short term oil price.

In the 2000s it was obvious that the price would steadily rise because of a lack of investment in new fields in recent years (following the oil price bust) plus rising demand from newly industrialising countries (especially China). Nowadays I haven't a clue.

I haven't paid serious attention to oil as an investment since 2014 and the only oil companies in which I've owned shares since than are Suncor Energy (not at the moment), and I had a tiny holding in Pharos Energy for a couple of years (Pharos is what Soco became).

Some of the old timers may be on the ADVFN Pharos Energy thread. Emptyend used to post there a lot, though I haven't looked at the thread for several years. Here is the link:

https://uk.advfn.com/cmn/fbb/thread.php3?id=45077175

[TheMotorcycleBoy]

Thanks for chipping in guys.

TBH, whilst I only have a few low allocations oil/gas holdings (LSE:SHEL, LSE:SPOG, LSE:BERI), I noted that a diversification green dividend play (LSE:UKW) has drifting downward. I hold, but I've not topped up for yonks, well until yesterday. Then I kicked myself, thinking that if oil does indeed follow DJTs intended direction (now seems less likely), then further falls could result.

However given AI, rearming of Europe, India's coming of age, there's probably little reason not to be LT bullish on energy.

MCB

[Hallucigenia]

And if the price drops how does that incentivise further production, surely the opposite?
-There is a natural floor on crude prices. Other posters might be able to describe the mechanics better than me but as I see it, when the price drops more wells become unprofitable and are shut down. This puts upward pressure on prices again. It's kind-of like the zero lower bound for monetary rates. You could google for views on where the bottom for prices is likely to be but I've thrown my hat in at around $60.

Although well shutting down is one factor, it tends to be quite slow except for fracced wells which have a relatively short lifetime, but are more about gas than liquids. The big one is OPEC politics, made ever more Byzantine by the creation of OPEC+ with Russia and others.

-it's not Urals oil entering the market place that matters but gross world production and demand. Is there any reason to think the Ruskies are producing less than they are able to in the circumstances?

What's going on in the Russian oil industry is anybody's guess, with >80% of exports travelling on the shadow fleet all we can say is that the error bars are wide. When they tried to flood the market before Covid there were concerns that they were storing up problems with reservoir damage and equipment wear and obviously their oil industry has been targeted by Ukraine - all we know at the moment is that the official figures have them about 10% down on where they were before Covid and the invasion, and they fell short of their quota in recent months. Maybe that just reflects a ton of smuggling, who knows.

-Certain self-important people might have an inflated view of their ability to influence the oil price. I disagree, over the longer term at any rate. One also has to doubt the chosen methodology of protectionism and trade wars. I expect the individual involved has as much clue about economics as how to string a coherent sentence together or the history and geography of landlocked African kingdom states.

You have to remember that the cost of living is the #1 top priority for US voters at the moment by a mile, so it is good politics to talk about action on anything that looks like it could reduce prices, and the cost of petrol is one of those prices that everyone knows and monitors. But realistically drilling in Alaska isn't going to see oil coming on stream within the current presidential term, let alone affecting retail prices. However in that time you can do enough exploration to make investors rich, and hopefully they will remember that when it comes to the next election campaign, should there be one...

And then there's the effects on forex of all the current shenanigans, the "oil price" depends on what the dollar is worth in hard currency...

I see no evidence of a drop in future world fossil fuel demand. The opposite if anything, especially given ongoing hatred of nuclear power.

Electricity is a whole separate thing, oil is more about transport. And as a rule of thumb, a country seems to reach peak oil demand somewhere around the time that EVs exceed 50% of new car sales. China saw 54% of new cars being electric in 2024 and has probably passed peak oil demand, Europe will probably get there in the next 2 years or so, the IEA reckons global peak oil demand will be 2030. We'll see - might be a year or two early, but not massively out. Bloomberg NEF is quite good on that kind of stuff - as Sheikh Yamani and others said, "The Stone Age came to an end not because we had lack of stones, and the oil age will come to an end not because we have lack of oil."

Gas is more complicated as it's an important transition fuel for decarbonising economies, but solar and wind are so much cheaper than LNG at least, that it makes sense to move the bulk of electricity to those and just use gas as a top-up during dunkelflauten. In the UK batteries provide cheaper top-up power than gas 95% of the time.

is it not the case that crude oil storage in the US was completely empty last year? Has that changed?

Which storage? They drew down strategic reserves after the invasion but they have now crept back up to >55% full. If you mean the storage at the price point at Cushing then it got low last year due to the new Trans Mountain pipeline diverting Canadian oil from the US Gulf coast to the Pacific, and it got down to about 20 million barrels at Cushing which is the bottom of the usual range of 20-40 which is the point at which Weird Stuff can happen in the markets as counterparties of contracts struggle to get physical oil to the delivery point, but the industry as a whole was in reasonable shape. It's now back to ~25 million. Cushing has ~10% of the storage capacity of the strategic reserves, before you even get to other commercial storage, so it's not that significant on a wider view, things just get twitchy because it's the delivery location of so many contracts. You can see this history here :

https://www.eia.gov/dnav/pet/hist/LeafH ... K_MBBL&f=W

[TheMotorcycleBoy]

Thanks this is interesting stuff. Certainly much more complex than short term geopolitical considerations.

Electricity is a whole separate thing, oil is more about transport. And as a rule of thumb, a country seems to reach peak oil demand somewhere around the time that EVs exceed 50% of new car sales. China saw 54% of new cars being electric in 2024 and has probably passed peak oil demand, Europe will probably get there in the next 2 years or so, the IEA reckons global peak oil demand will be 2030...

I assume that India, will be there in a few years time? And they'll be able to utilise solar for generation, at least when not in monsoon season.

MCB

[GoSeigen]

Thanks very much Hal for fleshing it out. You have a far better handle on the whole subject than I do. You didn't comment specifically on price but I didn't see anything strongly suggesting weaker pricing in the near term. Is that a fair inference?

GS

[Hallucigenia]

I assume that India, will be there in a few years time? And they'll be able to utilise solar for generation, at least when not in monsoon season.

There's been a fundamental change in the world - PV is now the cheapest way to generate electricity just about everywhere, and it keeps being rolled out way ahead of forecasts. Northern Europe was expected to be the last hold-out due to latitude and cloudiness, but in the latest UK auction, solar PV came in at just over £1/MWh cheaper than onshore wind and about £12/MWh cheaper than offshore wind.

The big problem for us of course is that our demand peaks in winter evenings which is exactly the time that high-latitude solar doesn't work. But marginal electricity demand in most of the world is driven by air conditioning, so they peak in summer afternoons, which is a near perfect match for solar. So solar is a no-brainer anywhere in the tropics or even with just a Mediterranean climate.

But yeah, India is the biggest single source of growth in oil demand, it's only around 5-6 million bpd at the moment, so about a third of China. Still - the IEA see peak global oil demand in 2030...

You didn't comment specifically on price but I didn't see anything strongly suggesting weaker pricing in the near term. Is that a fair inference?

I was careful not to because I don't claim any particular skill in picking the oil price - the direction relies on the difference between two very big numbers based in unreliable statistics, with a ton of politics and wider economics mixed in. I think the one certainty is that when it gets stretched one way or the other, it's fairly good at reverting to the mean.

But the conventional wisdom as expressed by the EIA's short-term outlook is that the market is pretty well supplied at the moment and absent Weird Stuff™ (of which there is clearly a lot right now) oil is likely to drift down to $60 or below over the next 18 months. We're a long way from the days of twenty years ago where China's growth squeezed OPEC's spare capacity to less than 2 million bpd, Saudi alone has over 3 million at the moment and the rest of OPEC proper has another 2 or so, with the possibility of a bit extra from Libya if that ever sorts out. So one reason that Iran has been a bit quiet of late is that OPEC capacity exceeds their production of 3-4 million bpd - although the success of the Houthis in blockading the Red Sea would give them some confidence in their ability to screw shipping in the Gulf.

You also have Trump at Davos exhorting OPEC to increase production to get lower prices at the pump in MAGAland :
it’s also reported today in the papers that Saudi Arabia will be investing at least $600 billion in America. But I’ll be asking the crown prince, who’s a fantastic guy, to round it out to around $1 trillion. I think they’ll do that because we’ve been very good to them. And I’m also going to ask Saudi Arabia and OPEC to bring down the cost of oil. You got to bring it down, which, frankly, I’m surprised they didn’t do before the election. That didn’t show a lot of love by them not doing it. I was a little surprised by that....With oil prices going down, I’ll demand that interest rates drop immediately. And, likewise, they should be dropping all over the world. Interest rates should follow us.

and now it seems that part of his quid-pro-quo with Putin is for Russia to make the same case within OPEC+.

Looking for other bear points - obviously we have the state of the global economy which is seeing confidence collapse due to the clowns in DC. That's not ideal.

And to be Captain Obvious, even if the price of oil goes up in dollar terms, if the dollar is weakening then it may be going down in your local currency.

So - I dunno. This is why I don't play the oil price directly!

[Bubblesofearth]

But yeah, India is the biggest single source of growth in oil demand, it's only around 5-6 million bpd at the moment, so about a third of China. Still - the IEA see peak global oil demand in 2030...

2030 is about the earliest prediction for peak demand;

https://en.wikipedia.org/wiki/Predictin ... ore%202045.

As of 2024, the International Energy Agency predicts that peak oil will happen by 2030, while the US Energy Information Administration forecasts a peak in 2050[1] and the OPEC does not see a peak in oil demand before 2045.[2]


FWIW Goldman Sachs have the peak still a decade away;

https://www.goldmansachs.com/insights/a ... ecade-away

The issue is not so much that renewables will take a bigger and bigger share of the Global energy pie but that the whole pie is growing. I looked for estimates for when new EV sales would reach 50% Globally and that seems to come out around 2035 which would fit with an approx average for peak oil demand predictions.

The key question for the price over the next decade or two (forget trying to forecast the next year) will be whether the supply side can keep up. Remembering that it's unlikely demand will fall off a cliff after it peaks - more likely a gradual decline or even a plateau for a while.

Predicting peak oil with a bunch of others almost 20 years ago was one of my biggest mistakes (the other was thinking UK use prices were going to crash!). With that history I'm now very cautious about predicting a supply peak. I've tried to calculate how much oil has been consumed by the World to date and get a figure around 1.7trn barrels. Proven reserves currently sit around this number as well although around 500bn barrels are heavy stuff, shale oil or Venezuelan tar. Well over half the original amount of extractable conventional oil has likely been consumed.

Two things make prediction of a supply peak difficult;

1. How much there actually is left.
2. The fact that OPEC have never ramped up production in the way that, eg. N. Sea or Texas conventional oil has been increased. This means that they can plateau production for many years rather than exhibit a bell curve production shape. Only when they come off this plateau will the real OOIP numbers be known.

My guess is that if demand doesn't peak and start to actually decline around 2030 then there will be another oil crunch and prices will rise steeply. But having been wrong about this once I won't be betting the farm!

BoE

[TheMotorcycleBoy]

The issue is not so much that renewables will take a bigger and bigger share of the Global energy pie but that the whole pie is growing.

I think you make a good point here. That was why I mentioned India in an earlier post. Not only this, but I've been watching some stuff about China, and allegedly a lot of the hinterlands remain undeveloped. By the same token other smaller portions of the globe continue to catch up with us pistonheads (me that is )

[servodude]

The issue is not so much that renewables will take a bigger and bigger share of the Global energy pie but that the whole pie is growing.

I think you make a good point here. That was why I mentioned India in an earlier post. Not only this, but I've been watching some stuff about China, and allegedly a lot of the hinterlands remain undeveloped. By the same token other smaller portions of the globe continue to catch up with us pistonheads (me that is )

One of the biggest bits of self misdirection here has been for some to concentrate on China's on going use coal.... and not noticing EVERYTHING else they are doing!

[Hallucigenia]

The key question for the price over the next decade or two (forget trying to forecast the next year)

I'd gently suggest you're in the wrong thread then, since this thread is explicitly about 2025....

I agree it's good to stick your head up occasionally and survey the landscape, but I'm not going to sweat about whether demand peaks in 2032 or 2035 - it's useful background but the detail isn't that important if it's still over 5 years away.

2030 is about the earliest prediction for peak demand...FWIW Goldman Sachs have the peak still a decade away;

https://www.goldmansachs.com/insights/a ... ecade-away

Well some of that could just be that the IEA is paying closer attention to what's going on than some US-focussed commentators (which I think will be a big enough trend to be exploited in the next 4 years). Looking at that Goldman piece they seem to be using data from 2022 as their 2023 numbers are "forecasts". But then you compare how the IEA has been forced to revise their forecasts for renewable additions (chart below), in just two years they had to add an extra 3-400GW per year being installed!!!

The world is changing fast, and I don't think commentators in the snowy parts of the world really understand how solar is transforming the sunny parts of the world. I'd also throw in the impact of climate pledges - even if the US is backpedalling, Europe remain committed even if it's not really showing through at the demand level yet. For instance, the UK is currently installing <10% of the heatpumps per year that its climate pledges imply (although installations were up >60% last year, we're catching up from a low base).

So we'll see.

[scrumpyjack]

JP Morgan forecast it will end 2025 'well below $70'

I'm no expert on the oil market but demand is probably very inelastic so a relatively small excess of production/supply can cause a sharp drop.
Trump has asked his dear friend MBS, the Saudi leader, to lower oil prices. Saudi oil has a very very low cost of production and if MBS believes the long term forecasts for much lower oil consumption, it is in his interests to produce as much as possible and sell it now! Added to that if the Ukraine war stops as Russia is readmitted to the world, they will sell lots more oil. The Chinese obviously prefer a low price, so if Putin wants to keep Xi sweet, he will be happy to sell much more oil and a lower price.

All in all, as a total non expert, it looks to me like the oil price could fall quite sharply.

ps, I have an oil boiler so I'm not unbiased!

[Hallucigenia]

JP Morgan forecast it will end 2025 'well below $70'

Well assuming they're talking WTI, it's already at $66, so define "well below".... As I say, the general feeling is that the market is pretty well supplied at the moment and the price will drift down a bit in the absence of Stuff Happening like Iran.

I'm no expert on the oil market but demand is probably very inelastic

Pretty inelastic but not totally.

Saudi oil has a very very low cost of production

But a high cost of keeping-the-royal-family-in-power - they need to provide a lot of bread and circuses just to keep the populace under control and government spending has been shooting up as they try to evolve their economy away from oil in the way that Dubai has. Their government budget currently needs ~$95 oil to break even, with another $15-20 on top of that for all the PIF megaprojects. Now they can afford to run deficits, but MBS has no great interest in the oilprice being a lot lower.

if MBS believes the long term forecasts for much lower oil consumption, it is in his interests to produce as much as possible and sell it now!

But the kind of things we've been talking about are not for "much lower" consumption, it will still be rising for 5+ years, and as BoE says, a longish plateau after that. Far better to sell into that plateau whilst other sources are dwindling.

as Russia is readmitted to the world, they will sell lots more oil.

The way the Russian sanctions were specifically designed to work, was to keep the oil flowing but to reduce the price Russia got paid. As I said above, Russia hasn't got a lot more oil to send - it's not clear because the data ain't great but they're currently only ~2 million bpd below their all-time high, and have probably suffered damage to reservoirs and facilities that will make it hard to get back even that high. Put it this way - over the next few years Guyana will probably add more to world oil supply than Russia.

But who knows - a good recession and all bets will be off.

[GoSeigen]

Some of the old timers may be on the ADVFN Pharos Energy thread. Emptyend used to post there a lot, though I haven't looked at the thread for several years. Here is the link:

https://uk.advfn.com/cmn/fbb/thread.php3?id=45077175

Poor emptyend must be desperate for his imminent™ buyout offer by now, as he seems to be ramping Pharos fka Soco over on the LSE boards. His Dec 2007 investment tip ranks in the top 5 worst I've ever received: to sell my gilts (truckloads of them) and put it all into Soco. Thank God I had better sense. My worst disaster was also following an oily tip: buying Afren bonds three months before their fraud was exposed. What an idiot!

Ironically I've just started slowly adding to my small Pharos ords position so it's gratifying to see absolutely no response to EE's efforts. Must remember to focus more on BP though...


GS

[SalvorHardin]

Some of the old timers may be on the ADVFN Pharos Energy thread. Emptyend used to post there a lot, though I haven't looked at the thread for several years. Here is the link:

https://uk.advfn.com/cmn/fbb/thread.php3?id=45077175

Poor emptyend must be desperate for his imminent™ buyout offer by now, as he seems to be ramping Pharos fka Soco over on the LSE boards. His Dec 2007 investment tip ranks in the top 5 worst I've ever received: to sell my gilts (truckloads of them) and put it all into Soco. Thank God I had better sense. My worst disaster was also following an oily tip: buying Afren bonds three months before their fraud was exposed. What an idiot!

Ironically I've just started slowly adding to my small Pharos ords position so it's gratifying to see absolutely no response to EE's efforts. Must remember to focus more on BP though...

Buying Soco in 2007 turned out to be a poor decision. OTOH following ee's posts re. Soco in 1999-2005 produced life changing returns for quite a few of us, at least for those of us who largely sold out instead of clinging on after the 2008 financial crisis (I sold almost everything in early 2008 after the Deep E well turned out to be not what was expected). Even after the 2014 AGM (my last one) there were quite a few of us in the pub afterwards who had done exceptionally well.

Ah, Afren. I left during their presentation at an Oil Barrel meeting (after five minutes I had heard enough - for those who remember the 1960s TV series "Lost in Space" hearing Afren's bosses speak was a "Danger Will Robinson" moment), and sold the lot before returning for the next company's presentation. One of the few who made money on Afren (about 150%).

I'm completely out of oil nowadays. On hearing that the Boston Celtics had been sold for $7.3 billion last week, I sold my one remaining holding (Suncor Energy) and used the proceeds to top up my existing American sports shareholdings; Atlanta Braves Holdings and Madison Square Garden Sports (New York Knicks and New York Rangers). The two year lock in period for the Atlanta Braves ends in July 2025 and I'd expect to see bids not long after that (selling the company before the two years leaves the company which spun it out with a CGT bill).

[BobGe]

Leaves one feeling that ee & Soco was more good fortune in the moment rather than skill and understanding.