There is quite a bit of uncertainty
in global oil markets these days as OPEC+ attempts to raise output to regain
more influence. However, increases have been less than planned due to some
members being unable to produce more.
Meanwhile, BP changed its
earlier estimate that global oil demand will peak as soon as this year and is
now saying that oil demand will increase at least till 2030, citing “rising
consumption in emerging markets, slower efforts to increase energy efficiency
and reduce global emissions, geopolitical tensions, and the continuing use of
petrochemicals.”
BP’s projections added about
1.4 million barrels per day of new global oil demand to 2030, from previous
projections of 102 million Bbls/day to 103.4 million Bbls/day. They
also cited “lackluster” energy efficiency gains. They noted in their 2025
Energy Outlook report that if current trends continue, demand could increase by
6 million Bbls per day through 2035. They also stated that “growth in
electricity use by data centers will account for ~10% of global power demand
growth through 2035 and 40% of U.S. power demand growth.”
Other geopolitical issues
will potentially affect oil supply and prices. These include Ukraine’s
successful efforts to curb Russian oil supply by drone bombing refineries and
processing facilities. Russia said recently that it will stop some diesel fuel exports
and all gasoline exports for the rest of the year to stabilize domestic supply.
Europe hopes to stop importing all Russian oil by the end of the year. An
agreement was reached to restart exports of Iraqi Kurdistan oil to Türkiye,
which would bring about 500,000 Bbls/day to the Turkish market and to the
global market. Exports from the Kurdish region have been halted for over two
years.
There is a lot of uncertainty
in global and domestic U.S. oil forecasts. U.S. shale oil plays are expected to
begin declining at some point, certainly by some time in the mid-2030s, as the
best core areas become drilled up. Production has already dropped due to the
lack of drilling to maintain it. Tsvetana Paraskova of Oilprice.com notes that
Enverus Intelligence Research (EIR) is forecasting significantly higher
breakevens for the U.S. as depletion of core inventory becomes a concern in the
mid-2030s. They predict breakevens will rise from $70/Bbl to as much as
$95/Bbl.
“North America’s dominance in supplying global oil
demand growth is waning,” Alex Ljubojevic, director at EIR, said in a statement.
“Over the next decade, its contribution to consumption
growth is expected to fall below 50% — a stark contrast to the previous 10
years when it supplied more than 100%,” Ljubojevic added.
This suggests that OPEC+ is
poised to regain some market share. However, in the near-term, drilling has
been suppressed in the U.S., and cap-ex has been pulled back from drilling,
waiting for better prices and more favorable costs to drill and produce. Some
companies, such as Midland Basin leader Diamondback Energy, are saying that
U.S. shale oil production has likely peaked and activity will remain
suppressed.
The latest anonymous Dallas
Federal Energy Survey, which polled executives from 139 companies, paints a
rather bleak picture for U.S. oil producers, especially in the near term. Most
oil executives said that Trump’s energy policies have reduced their breakeven
costs by less than $1 per barrel. According to Paraskova:
“The administration is pushing for $40 per barrel crude
oil, and with tariffs on foreign tubular goods, [input] prices are up, and
drilling is going to disappear. The oil industry is once again going to lose
valuable employees,” one E&P executive commented to the survey.
It is rather obvious that the
U. S. oil industry won’t survive at $40/Bbl. One executive noted that both the
Biden and Trump administrations are at fault for “breaking” the industry.
“The shale patch consolidation has been fueled by the
collapse of capital availability. This consolidation, in turn, is pushing out
independents and entrepreneurs who once defined the shale revolution, according
to the executive.”
“In their place, a handful of giants now dominate but at
the cost of enormous job loss and the destruction of the innovative,
risk-taking culture that made the U.S. shale industry great.”
Costs to drill and produce
have surged, and it is bringing companies to the brink of financial viability.
This is likely to drive more industry consolidation. One industry leader noted:
“The uncertainty generated by the administration’s
policies has stifled all investment in the oil sector. Those who can are
leaving.”
Others have stressed that the
50% tariffs on steel and aluminum are hurting the industry bad. According to
Gabriela Leon of Explicame:
“Exploration and production companies reported that
costs for discovery and development doubled in Q3, while leasing expenses also
spiked. Meanwhile, oilfield service companies, which had already been grappling
with negative margins, warned that the sector is “bleeding” financially. The
rising prices of tubular steel, heavy materials, and imported components have
made drilling operations increasingly uneconomical.”
“Tariffs continue to increase production costs. We are
caught in a combination of rising costs due to tariffs and downward pressure on
prices from end-users,” one service company executive remarked.
“Daily changes in energy policy prevent us from winning as
a country,” they said. “Investors are avoiding energy due to volatility and the
risk of drastic government actions.”
“The shift in policy also worries many within the industry.
While President Trump champions domestic drilling as the key to an American
energy renaissance, the very policies his administration is pushing have
increased costs, stymied investment, and left many operators unable to move
forward. “The oil industry is going to lose valuable employees again,” one
executive lamented. “Drilling is going to disappear.”
Oilprice.com’s Irina Slav
notes that Russian sanctions and pressure on China, India, the EU, and others
not to buy Russian (and Iranian and Venezuelan) oil are keeping a potential
glut in check and oil prices from dropping. Russia has a lot of oil and remains
the world’s second biggest producer. The sanctions aim to take that oil off the
market but have ended up just moving it around and hitting Russia with price
caps that others take advantage of, such as India and China. She also notes
that while oil demand is expected to peak soon in China, the country is
currently building its oil stocks. They have been importing more crude oil than
their refineries can process, putting much of it in storage. This is also
affecting prices, keeping them from dropping, she says. The problem with
sanctioning Russian oil deeper is that it will put upward pressure on oil
prices. She also notes that all the clandestine oil trading via ship-to-ship
transfers is making prediction more difficult since it creates “blind spots.”
In any case, $40 oil is not plausible or desirable, although I would personally
like to spend less on gasoline! However, I am willing to pay more to punish
Russia. The bottom line is that predicting oil supply, demand, and prices is a
tough and complex game that has many variables and wildcards.
References:
Tariffs
hit US oil and gas in the third quarter: Costs double. Gabriela León.
Explicame. September 25, 2025. Tariffs
hit US oil and gas in the third quarter: Costs double
OPEC+
is poised to slip further below oil output target. Seher Dareen and Ahmad
Ghaddar. Reuters. September 26, 2025. OPEC+
is poised to slip further below oil output target
BP
sees oil demand growth until 2030, dropping view for peak demand as soon as
this year. Seeking Alpha. September 25, 2025. BP
sees oil demand growth until 2030, dropping view for peak demand as soon as
this year
Oil
slips but heads for biggest weekly gain in 3 months on geopolitical tensions.
Seeking Alpha. September 26, 2025. Oil
slips but heads for biggest weekly gain in 3 months on geopolitical tensions
U.S.
Shale Costs to Soar to $95 per Barrel Within a Decade. Tsvetana Paraskova.
Oilprice.com. September 25, 2025. U.S.
Shale Costs to Soar to $95 per Barrel Within a Decade | OilPrice.com
Why
Crude Refuses to Crash Despite Glut Predictions. Irina Slav. Oilprice.com. September
22, 2025. Why
Crude Refuses to Crash Despite Glut Predictions | OilPrice.com
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