When the CEOs and senior executives of five of the world’s largest energy companies were asked recently what kept them awake at night, they listed geopolitical risk, energy security, China’s economic slowdown, supply chain disruptions, and the threat of escalating trade wars and their impact on the energy transition as the most pressing issues of 2024. These were the same issues that the OPEC+ oil alliance led by Saudi Arabia and Russia had to contend with in managing oil output policy in 2024.

Continued uncertainty over the extent of oil demand growth, particularly in China, and how to manage a possible change in U.S. energy policy under the incoming president, Donald J. Trump, a fossil fuel champion, will occupy the minds of OPEC+ ministers as they approach 2025. The collapse of the Syrian Baathist regime of Bashar al-Assad in early December has added another layer of geopolitical risk that has yet to play out.

“Of course, the Middle East conflict is what keeps me awake at times, at the moment, more than anything else,” Shell CEO Wael Sawan said during the November 4 Abu Dhabi International Petroleum Exhibition and Conference. “Longer term, what happens on U.S.-China access, the impact that would have on demand for energy, in particular the Chinese market and the size of it, the impact it could have on the supply chain, the impact it could have on the redrawing of the energy complex globally and how a company like ours needs to be able to navigate is indeed a big question,” he added.

OPEC+’s Cautious Approach

With all the uncertainty clouding the picture, OPEC+ adopted a cautious approach throughout 2024, maintaining production levels without change in efforts to balance the market and prop up prices that were weighed down by tepid Chinese demand and higher non-OPEC+ output, mainly from the United States. It was largely successful in preventing what some analysts expected would be a slide below $70 per barrel.

Benchmark Brent crude oil averaged $80.91/bbl as of December with prices trading within a tight range between $71/bbl and $74/bbl in the final trading days of the year. The U.S. Energy Information Administration has forecast that Brent crude oil prices will end the year at an average $80.49/bbl, falling to an average $73.58/bbl in 2025.

Since October 2022, the 22-member OPEC+ has slashed a total of 5.8 million barrels per day of crude oil, of which 3.9 mb/d were voluntary cuts borne largely by Saudi Arabia. The last tranche of the voluntary cuts, totaling 2.2 mb/d, were implemented in January as OPEC+ struggled to prevent a slide in oil prices due to Chinese demand projections being revised lower in the final stretch of 2024, despite economic stimulus efforts by Beijing. After twice postponing the tapering of the voluntary cuts, the OPEC+ ministers decided in early December to defer the return of these barrels and wait out the first quarter of 2025.

On December 5, OPEC+ held its final conference of the year virtually and set out a multifaceted output pathway to 2026, a strategy that the group hopes will frustrate efforts by speculators to influence prices. As outlined in an OPEC Secretariat press release, the eight OPEC+ producers, which had been due to start restoring barrels gradually at a rate of 180,000 b/d, agreed to defer the return of 2.2 mb/d of the voluntary cuts to March 2025, a year later than originally planned. They also slowed the pace of the increases, which had been due to start in January 2025. From an initial planned 12-month taper, the latest road map is for the 2.2 mb/d to be brought back into the market over an 18-month period from April 2025 to Sept 2026.

At the same time, the wider OPEC+ group extended another 3.65 mb/d of cuts, of which 2 mb/d is a formal reduction and 1.65 mb/d voluntary, to the end of 2026. The United Arab Emirates, which has taken on the largest pro rata share of the cuts when taking into account its rising production capacity, agreed to defer an increase that it was accorded, presumably for the sake of maintaining group cohesion. The UAE was supposed to increase output gradually by 300,000 b/d to 3.52 mb/d over the first nine months of 2025. Instead the increment will be phased in over 19 months beginning in April 2025. The UAE puts its current maximum oil production capacity at 4.85 mb/d, which, under its current “required production” allocation, means it is sitting on more than 1 mb/d of idle capacity.

Diverging Outlooks

In an uncertain market with so many variables, it was prudent for OPEC+ to keep its options open rather than committing to keeping full cuts beyond the first quarter until data on early 2025 balances is available.

The Brent market is in very narrow backwardation, whereby the front month contract is trading at a premium to forward months, a sign of a fairly balanced market. But the margin is very thin, and OPEC+ will want to avoid flipping the market’s structure into contango, which would allow for stock builds that would be bearish for prices. It would also allow for a clearer picture to emerge once the U.S. refinery season in the first quarter is out of the way.

Before the December agreement, the International Energy Agency had predicted that even if OPEC+ adhered to the full cuts, the market would be in surplus in 2025 to the tune of 1.5 mb/d. Following the OPEC+ deferral, the IEA in its December “Oil Market Report” slightly revised down its estimate, though it still expects a surplus of 950,000 b/d, including a 1 mb/d stock build in the first quarter, traditionally a period of low oil demand.

In its December report, the IEA noted that the decision “has materially reduced the potential supply overhang that was set to emerge next year.” In contrast to this, the EIA expects a stock drawdown of 700,000 b/d, with inventories then building by 100,000 b/d over the remainder of the year.

Yet as 2024 draws to a close, the overall picture of where supply-demand balances stand remains unclear with the IEA, OPEC, and the EIA presenting diverging outlooks for the year. However, that OPEC had to revise down Chinese oil demand expectations for five straight months points to a bearish market. OPEC+ has also been plagued by persistent violations of production allocations, mainly by Iraq, Kazakhstan, and Russia, which complicated efforts by the group to manage the overhang amid rising output for the United States and other non-OPEC+ producers.

The market consensus has grown increasingly bearish in recent months. OPEC, having stuck to a bullish demand assessment for much of 2024, has revised down its expectations by 210,000 b/d since August, mainly because of a 570,000 b/d revision in the third quarter, to 1.61 mb/d.

However, this still puts it well above the IEA’s 2024 forecast of 840,000 b/d demand growth, though the gap has narrowed since the start of the year, when OPEC expected growth to top 2 mb/d.

The IEA noted in the December report that “the abrupt halt to Chinese oil demand growth this year – along with sharply lower increases in other notable emerging and developing economies such as Nigeria, Pakistan, Indonesia, South Africa and Argentina – has tilted consensus towards a softer outlook.”

Uncertainty for 2025

The non-OPEC+ supply side of the equation is just as uncertain. For 2024, the IEA’s latest 1.48 mb/d supply growth forecast remains broadly in line with its expectations from the start of the year, despite Brazil once again underperforming. The IEA indicated that, between the first forecast and now, “Brazil was, by far, the biggest miss this year, with annual output revised down by 280,000 b/d.”

While oil prices remained largely range-bound in 2024, the major spikes in price were due to geopolitical tensions over fears of a wider Middle Eastern war involving Iran and Israel. Oil prices soared above $90/bbl in April after Israel launched airstrikes against Iranian military facilities but avoided striking energy infrastructure. Prices eased back sharply when it became clear that oil supplies would not be affected, though they were back up again after Iran retaliated in October, firing more than 180 missiles at Israel. They rose briefly again after a December 13 Wall Street Journal report that Trump was weighing options to stop Iran’s nuclear program, including the possibility of “preventive airstrikes.” At the same time, the market has adapted to the geopolitical threat emanating from attacks on Red Sea shipping by the Iran-backed Houthis in Yemen as tankers avoided the waterway.

Yet the incoming U.S. policy toward Iran remains one of the big unknowns. Iran, while exempt from OPEC+ output restrictions, has managed to maintain its oil production, albeit below its maximum capacity due to sanctions. It has also been able to export its oil, mainly to China, having found a way to evade what has been lax enforcement of sanctions by the administration of President Joseph R. Biden Jr. The incoming Trump administration is likely to adopt an even tougher policy against Tehran this time around and amplify the “maximum pressure” campaign it applied during Trump’s previous term in office. Should that occur, it could shrink Iran’s oil and condensate exports, which shipping data by Kpler shows have averaged 1.57 mb/d so far this year.

All this is taking place while the oil producers and companies are adapting to a changing energy landscape due to the ongoing transition and fast-paced electrification of key sectors, such as transportation, that traditionally have relied on oil. Meanwhile, the deployment of renewable energy for power generation is growing at a faster pace with investment in solar and wind energy surpassing funds going into oil and gas projects. The IEA has maintained in its long-term outlook to 2050 that demand for oil will peak by 2030, while OPEC sees continued growth in demand to 2045 and possibly beyond.

Musabbeh Al Kaabi, the executive director of Low Carbon Solutions & International Growth at the UAE’s state-owned Abu Dhabi National Oil Company, said geopolitics will have an impact on the course of the transition. “When I look at the energy transition going forward, what is clear is that geopolitics will take a role, but also different scenarios could lead to different energy transition trajectories, and, with escalating trade wars, I think it may have an impact on the energy transition going forward.”

As 2024 comes to a close, oil markets remain under a cloud of uncertainty shaped by geopolitical risks, weaker-than-expected Chinese demand, and an evolving energy transition landscape. While OPEC+ has managed to stabilize prices through cautious production strategies, challenges such as a potential supply overhang, U.S. policy shifts under a new administration, and global economic headwinds continue to loom large. The group’s ability to balance market fundamentals while responding to geopolitical shocks will define its role in 2025, as energy producers brace for an increasingly complex and competitive market.