2025.01.15

Oil prices dip on U.S. demand forecast and Russian sanctions, but limited by supply expectations

Oil prices fell on Tuesday due to a U.S. agency's forecast of steady demand in 2025 and increased supply expectations. The decline was limited by new sanctions on Russian oil exports. Brent settled at $79.92 and WTI at $77.50. The U.S. EIA predicted 20.5 million bpd demand in 2025 and 2026, with domestic output rising to 13.55 million bpd. Analysts anticipated a price impact from the sanctions on Russian oil but expected the actual market impact to be less severe. Uncertainty about Chinese demand could offset supply constraints.

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US Shadow Fleet Sanctions Spark Surge in VLCC Spot Rates and Futures

The imposition of sanctions on the US shadow fleet has caused a surge in VLCC spot rates and futures. Non-eco VLCC rates skyrocketed by over 50% in a single day following Joe Biden's sanctions announcement. According to Sources the rates for eco and scrubber-fitted vessels also rose significantly. Despite a relatively quiet Monday, Tuesday saw a flurry of fixture activity, with rates possibly reaching $50,000 per day. Tankers International observed an increase in VLCC spot fixtures, with most cargoes headed to China. Notable charters included the Twin Pollux and C. Spirit vessels, both carrying crude oil from the Middle East to China. FFA volumes spiked, with contracts closing at $56,000 per day. This increase coincided with the US sanctions on Russia-linked ships, causing a spike in tanker FFA lots. The ongoing sanctions have ignited a fire under the VLCC market, driving up rates across the board.

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US Sanctions on Russian Trading Vessels Disrupt Global Tanker Market

Following the US sanctions on 183 vessels involved in Russian trading, at least 65 tankers have stopped their journeys worldwide, with many anchoring off the coasts of China and Russia. Indian ports have also halted trade with these sanctioned ships, while Chinese oil buyers are reportedly holding emergency meetings. Despite questions about the legality of receiving crude already in transit, India expects its crude flows from Russia to remain unaffected until March, as the sanctioned ships can still discharge their cargo if loaded before Friday. Jefferies investment bank anticipates significant consequences from the US Treasury's aggressive stance on Russia and Iran, as the targeted vessels directly contribute to their oil exports. The tanker market could benefit as vessel supply diminishes, but the real impact would be felt once other exporters compensate for the lost volumes. Cutbacks in exports are expected in the coming months, followed by a possible production response from other exporters like Saudi Arabia.

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EIA Predicts Oil Prices to Face Downward Pressure Due to Oversupply in 2025 and 2026

The U.S. Energy Information Administration (EIA) predicts that oil prices will face downward pressure due to oversupply in 2025 and 2026. This is a result of global production growth outpacing demand, especially in major energy-consuming countries like the U.S. and China. The EIA forecasts Brent crude oil prices to drop by 8% to $74 per barrel in 2025 and further decrease to $66 per barrel in 2026. U.S. oil production is expected to reach a record high of 13.55 million barrels per day in 2025, with prices averaging $70 per barrel and dropping to $62 per barrel in 2026. The Permian Basin in Texas and New Mexico is projected to contribute over half of U.S. oil output by 2026. Globally, oil and liquid fuel production is forecasted to reach 104.4 million barrels per day in 2025, with OPEC and allied nations easing supply cuts and non-OPEC producers expected to increase output. Despite this, global demand is predicted to be at 104.1 million barrels per day, lower than pre-pandemic levels and previous estimates.

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Peru's Bretaña Crude Oil Gains Popularity in U.S. Market

Peru's niche Bretaña crude oil is becoming popular in the United States, with the first cargo recently arriving at the U.S. Gulf Coast. This heavy sweet crude, produced in the Amazon rainforest, is in demand as U.S. refiners look for alternatives to Mexican heavy crude. The oil, with minimal metals, is transported to the U.S. via larger ships departing from Brazil (MT RADIANT PRIDE). Last year, two cargoes of Bretaña arrived at the U.S. West Coast, with one going to Marathon Petroleum and another to PBF Energy. Despite challenges with Petroperu's pipeline, which briefly halted exports between 2022 and 2024, PetroTal Corp continues to produce and export around 20,000 barrels per day. The company has a contract with Novum Energy for export and transportation, but is working on increasing production with plans to secure pipeline access. Petroperu has also indicated plans to negotiate fair rates with producers for pipeline use in the future.

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Guyana Becomes Latin America's Fifth Largest Crude Oil Exporter in 2024

In 2024, Guyana exported 225 cargoes of crude oil, making it Latin America's fifth largest crude exporter after Brazil, Mexico, Venezuela, and Colombia. The country saw a 54% increase in oil exports, reaching 582,000 barrels per day. Guyana's oil production is dominated by a consortium led by Exxon Mobil. The government is focused on increasing production with the arrival of a fourth FPSO facility, adding 250,000 bpd of output capacity. They are also working on legislation for advancing a gas-to-energy project and diversifying the oil industry with new consortiums.

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