A Persistent Surplus in H1-2025 Leaves OPEC+ No Room to Unwind Production Cuts

Key Takeaways

Downward revisions to December supply have nearly doubled the deficit for the final month of the year, but the rest of the global crude and condensate balance has seen limited changes. The trend of persistent surpluses through the first five months of 2025 is set to weigh on crude prices.

September’s deficit has remained the same, while a narrowing surplus in October has been due to a dip in refining activity being delayed until November instead. These lower runs than previously expected, particularly in Europe and Russia, have lifted November’s surplus close to 900 kbd. As for Q4, supply has been revised lower by 440 kbd, while demand has been ratcheted down by 350 kbd. Revisions in the Middle East (Saudi Arabia, Iraq) and North America (both Canada and the US) account for most of the supply-side adjustments, while widespread downward revisions across Europe, as well as Russia and Asia, account for the weaker demand side of the picture.

As for 2025 revisions, January’s surplus has narrowed slightly, February and March are little changed, April’s surplus has widened (due to Brazilian refinery maintenance), and May's surplus has increased slightly. On the aggregate, the surplus over the first five months of next year averages 1.3 Mbd, which compares to 560 kbd in 2023 and 490 kbd in 2024. If every barrel of this surplus makes its way into inventories, then stocks would rise by 200 Mbbls over the period. In contrast to the start of the year, the latest revisions have caused the monthly deficits for June, July and August to all widen. After inventory builds are set to weigh on prices through 1H 2025, strong demand should encourage higher prices in the second half of the year.

Global crude and condensate balance, kbd

Source: Kpler

Crude Oil Price Forecast

Brent remained within a tight bandwidth of $70-76/bbl in November, despite a rise in uncertainty, which has come on the back of several factors, including Donald Trump’s reelection (and a potential of US tariffs on imports), sluggish European PMI readings, a longer-than-typical crude balance in November (+700 kbd), an upcoming OPEC+ meeting (that will decide on the group’s policy for H1 2025), and a decline in geopolitical tensions in the Middle East (with Israel and Hezbollah agreeing on a ceasefire in late November). It should be noted, however, that fighting between the latter two has reportedly continued since, albeit to a lesser extent.

More recent upward support for crude prices has been coming from China, with its Caixin Manufacturing PMI rising to 51.5 in November, which represents the highest level in 5 months. With OPEC+ expected to announce an extension of their voluntary production cuts at their next meeting on 5 December, we see Brent rising to an average of $76/bbl this month. A decline in the global crude and condensate balance will contribute towards this too, with balances expected to average a deficit of 820 kbd this month, according to our preliminary figures. This will weigh on global crude stocks, which rose to 3.36 Bnbbls in early December, up around 45 Mbbls versus early October levels.  

We estimate that Brent will remain supported in January too, with Donald Trump being sworn into office on 20 January and his administration planning on implementing maximum pressure against Iran, which will restrict its oil exports and the country's influence in the Middle East. Iranian crude and condensate supply is forecasted to come increasingly under pressure by mid-2025, with total output expected to fall below 3.6 Mbd by July 2025, which would represent a decline of around 500 kbd compared to current levels. Nevertheless, a combination of relatively elevated OPEC+ spare capacity, coupled with a longer-than-typical global crude balance, will keep a lid on prices in 2025, with the group’s spare capacity remaining near multi-year highs and averaging 5.6 Mbd in November.  

OPEC+ Production

OPEC+ crude output rose by nearly 400 kbd m/m in November, driven by Kazakhstan's Kashagan field resuming operations after maintenance and the commissioning of two new FPSOs in Brazil. Libya's production also rebounded to pre-September outage levels.

Meanwhile, the bloc's major producers have intensified efforts to improve compliance. Saudi Arabia's output declined, partly due to maintenance activities at the Yanbu refinery, while both Russia and Iraq brought their production closer to their respective quotas, signalling stronger adherence to the group's targets.

OPEC+ crude oil production, kbd

Source: Kpler

Differentials

The plight of Middle Eastern producers continues. The continuous backwardation created by the geographic dislocations of wars and sanctions, as well as the Red Sea shipping disruptions has started to readjust to a much lower level. OPEC+ policy which keeps the oil markets guessing whether there would be production increases or not perpetuates backwardation as the innate expectation is always for more supply in the future, whilst cuts are happening in the now. However, the looming over supply of 2025 will limit the extent of backwardation greatly, in December already the M1-M3 spread averaged $0.70/bbl, some $0.70/bbl below the October monthly average. Even if one is to compare the last decade of November compared to the same period in October, the flattening curve should bring about a $0.50/bbl.

Dubai M1-M3 monthly averages, $/bbl.

Source: Argus Media.

Inevitably, weaker pricing dynamics have invigorated term buyers enough to suggest medium sour prices should dip by at least $0.70-0.80/bbl, mirroring the plunge in the cash-to-futures spread. At times, the suggestions published in leading commodities media were bordering on ridiculous, saying that heavier grades should be cut more than light ones as both middle distillate and fuel oil cracks fell in November. First and foremost, refining margins went up in November, with the profitability of complex refineries jumping from $9.9/bbl in October to $12.2/bbl in November. Second, middle distillate cracks didn’t decline at all, quite the opposite. Diesel cracks went from a $13.2/bbl monthly average in October to $16.5/bbl in November, and the same $2-3/bbl upward lift also happened to HSFO cracks which ended last month within arm’s reach to Dubai parity.

January OSPs will be indubitably linked to the outcome of the OPEC+ decision. As we’ve been saying since September, balances for 2025 leave no space for the winding down of OPEC+ barrels, unless respective countries want to purposefully deflate prices. In our view, the combination of weaker backwardation (that has seamlessly transitioned into December) and relatively stronger refining margins should see Arab Light cut by $0.50/bbl compared to its December formula price. In its latest formula price setting, Saudi Aramco put the December OSP of Arab Light at a $1.70/bbl premium to Oman/Dubai, dropping to $1.20/bbl would represent the lowest differential since March 2021. Lighter grades should see steeper cuts as naphtha cracks started to fall by the wayside after a strong spurt in October, whilst gasoline cracks have been rangebound around $11/bbl.

Dubai - WTI prompt-month spread, $/bbl.

Source: Argus Media.

In the Atlantic Basin, declining refining capacity in both the United States and Europe will add further pressure on WTI differentials. Between 11 October and 1 December, WTI was never the weakest grade in the BFOETM basket, the longest competitive streak of Midland ever since it was added to Europe’s physical benchmark. However, that strength has started to dissipate gradually in December, with the first trading day of the month already seeing WTI as the weakest. We believe that there’s fundamental reasons why WTI should weaken in 2025. Most importantly, the 264 kbd Houston refinery operated by LyondellBasell will shut its first CDU in January, and the second one in February. This will free up an almost equivalent amount of light sweet US grades, boosting WTI exports, all the while incremental crude supply will y/y add another 300 kbd. Additionally, the 140 kbd Grangemouth refinery in Scotland that has gradually reconfigured its slate from light Norwegian grades to WTI will be shutting down in H1 2025 as well, further limiting market outlets for the grade.

Landed prices of heavy grades on a DES Long Beach basis vs WTI, $/bbl.

Source: Kpler, based on Argus Media data.

We maintain a similar view on the other growing segment of the North American market, heavy sour volumes from Canada. As TMX exports have ramped up to 410-420 kbd over the past two months, a downward pricing correction is overdue as the competitiveness of Access Western Blend and even Cold Lake is no longer there. The landed prices of high-TAN grades from Canada, most notably AWB, have remained at a relatively elevated level of -$4/bbl vs ICE Brent M3. With such pricing, Mexico’s Maya is cheaper than TMX volumes despite being of superior quality, let alone Ecuador’s heavies (Napo FOB differential slid down to a -$15 to -$16/bbl discount to the same Brent M3 basis). Increasing volumes coming out of Canada, a restricted pool of buyers that is going to shrink further once P66’s Wilmington refinery shuts down in H2 2025, a weaker HSFO outlook and more competitive pricing from embattled Latin American peers should all jointly push TMX differentials lower, back to where they were in the first months of their trading.

Refinery demand

Refinery crude demand revisions November 2024

European refinery runs have been revised lower by 235 kbd in November, driven by reduced processing rates at Gunvor's Rotterdam refinery amid a temporary economic shutdown. Greek crude intake has also been lowered by 60 kbd, reflecting a drop in crude imports to 320 kbd (-100 kbd m/m) in November, the lowest level in a year, and rising crude inventories. Additionally, slight downward adjustments were made for refineries in Spain, the UK, and Poland

Asia crude throughput was adjusted lower by 290 kbd last month, with Chinese refinery runs lowered by 80 kbd amid rising crude inventories. In Brunei, Malaysia, Japan, and Indonesia, crude intake was reduced due to maintenance activities at their respective facilities

Middle East crude demand was lowered by 310 kbd in November, with Saudi Arabia contributing most of this adjustment. The country's direct crude burn projection was lowered by 160 kbd last month, while refinery runs were reduced by 130 kbd due to ongoing maintenance at the Jizan and Yanbu refineries

North American refinery runs were revised upward by 95 kbd, driven by a 155 kbd increase in US crude throughput in November, while Mexico crude demand was adjusted lower by 60 kbd

The rather surprising start-up of CDU 1 at Nigeria’s state-owned Port Harcourt refinery prompted us to slightly adjust our estimates for the country’s crude intake higher in 2024 and 2025. Kpler’s in-house crude stocks data imply that test runs have been ongoing, with PPMC inventories dropping from 1.5 Mbbls in August to 1.3 Mbbls in October to around 1 Mbbls in November. While CDU 1 has a nameplate capacity of 60 kbd, we expect the unit to only run around 20 kbd for the rest of the year, potentially reaching full capacity in Q3 2025, contributing to total Nigerian crude runs of 420 kbd in September 2025. Port Harcourt's second CDU could start test runs in late 2025, pushing the refinery’s crude intake to 150 kbd in December 2026 and total Nigerian throughput to above 700 kbd.  If CDU 2 were to fully start up, moving capacity to 210 kbd and including all secondary, product output should theoretically move to 82 kbd gasoline, 78 kbd diesel, 20 kbd jet and 18 kbd residue.

Nigeria crude intake, kbd

Source: Kpler

After Indian offline capacity fell from 460 kbd in October to 250 kbd in November, the return of major facilities such as the Mumbai refinery (120 kbd CDU 3 and 120 kbd CDU 4 offline between 4 - 30 November) should further reduce offline capacity to close to zero in December. In line with this, the country’s crude and condensate imports recovered from multi-month lows in October to 4.7 Mbd in November, 300 kbd above the prior month and marking the highest reading since July. We estimate Indian refinery runs to grow from the 5.0-5.2 Mbd range seen over the Aug-Oct period to around 5.4 Mbd from November 2024 to February next year, buoyed by festival celebrations and wedding season driving higher products demand in the country.

Chinese crude and condensate imports (incl. Made Island) climbed close to 10.6 Mbd in November, 450 kbd higher m/m and the highest since August. This development reflects stronger spot buying during September-October's pressured price environment as well as a SPR replenishment drive. Kpler inventory data show that last month, Chinese onshore crude stocks have risen to a 13-month peak of 966 Mbbls (+2% m/m). Crude arrivals in China should continue to be elevated in December, as we expect the country’s refinery runs to climb from 15.05 Mbd  in November to 15.1 Mbd this month and 15.35 Mbd in January 2025. Robust demand from major private refineries like Yulong and state-owned oil firms pushed ESPO differentials vs ICE Brent on a delivered Shandong basis to a two-year high of $1.20/bbl, with the December programme sold fully and only several cargoes remaining from the January loading schedule.

Chinese crude intake, kbd

Source: Kpler

Production revisions

Algeria – production revised lower by 60 kbd in November due to lower exports, December revised lower as well

Canada – revised lower by 150 kbd in September and 80 kbd in October due to aligning with national statistics

Iran - production has been revised lower by an average of 440 kbd from May through December 2025, as we anticipate renewed restrictions on Iranian oil exports. The Trump administration is expected to engage in a combination of pressures and diplomatic measures aimed at reducing Chinese crude imports of Iranian barrels

Iraq - October 2024 to February 2025 production revised lower by an average of 130 kbd due to closer compliance with the OPEC+ production deal via lower exports, as well as reduced supply from the KRG

Saudi Arabia - production revised lower by 150 kbd in November despite higher exports, due to refinery maintenance and lower direct crude burn

United States – production revised lower by 130 kbd in November due to tropical activity in the US Gulf Coast, with a knock-on effect for December, reduced by 60 kbd

Production revisions, kbd

Source: Kpler estimates

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