EIA STEO 2025: Crude Market Trends Unveiled

Oil Supply

U.S. Production:

• After setting a record at 13.2 million barrels per day (Mb/d) in 2024, U.S. crude oil production is forecasted to rise to 13.5 Mb/d in 2025 and 13.6 Mb/d in 2026.

• Permian Basin: The primary driver of U.S. production growth, output in the Permian is expected to reach 6.6 Mb/d in 2025 and 6.9 Mb/d in 2026.

• Gulf of Mexico: Offshore production remains steady, reaching 1.8 Mb/d in 2025, supported by long-term projects less sensitive to price fluctuations.

Global Production:

• Global oil supply is expected to grow by 1.8 Mb/d in 2025 and 1.5 Mb/d in 2026, driven by increased production from non-OPEC+ countries, particularly the U.S., Canada, Brazil, and Guyana.

• OPEC+: Voluntary production cuts enacted by OPEC+ in late 2023 and throughout 2024 were extended into the first half of 2025, reflecting the group’s cautious approach to market stabilization. While some cuts were eased in mid-2025, the pace of returning production to the market remains slower than anticipated. Key producers such as Saudi Arabia and Russia have indicated a preference for maintaining price support over rapid supply growth. These delayed additions amount to a gradual increase of 0.2 Mb/d in 2025, with a more significant 0.6 Mb/d increase forecasted for 2026.

Potential U.S. Tariffs:

• The return of President Trump to office has sparked discussions of potential tariffs on imported oil, a move aimed at supporting domestic producers. If implemented, these tariffs could increase the competitiveness of U.S. crude in the domestic market by raising the cost of imported barrels.

• Market Implications:

  • Tariffs may incentivize higher domestic production, particularly in regions such as the Permian and Bakken, as producers benefit from a more favorable pricing environment.

  • Global market dynamics could shift, with countries like Canada and Mexico potentially seeking alternative buyers for crude displaced from U.S. markets.

  • Refiners in the U.S., particularly those configured for heavier crude, could face higher input costs, potentially reducing margins and impacting refining throughput.

• Risks and Uncertainty: The introduction of tariffs would likely face opposition from refiners and trade partners, adding to geopolitical tensions. Additionally, any retaliatory actions by other nations could create disruptions in global trade flows.

2. Oil Demand

Global Trends:

• Oil demand is forecasted to grow by 1.3 Mb/d in 2025 and 1.1 Mb/d in 2026, with consumption reaching 103.9 Mb/d by the end of the forecast period.

• Non-OECD Countries: Asia, led by India and China, accounts for most of the demand growth. India’s demand is expected to increase by 0.3 Mb/d annually through 2026, driven by rapid industrialization, urbanization, and infrastructure development. China’s consumption growth slows compared to historical averages but remains a key driver due to its expanding petrochemical sector and vehicle fleet.

• OECD Countries: Demand remains flat, with slight increases in 2025 offset by reductions in 2026 as efficiency improvements and a shift to alternative fuels curb consumption in transportation and industry. Europe’s focus on renewable energy and electrification accelerates this trend.

Key Sectors:

• Transportation Fuels: Jet fuel demand sees robust growth as global air travel recovers to pre-pandemic levels, particularly in emerging markets. Distillate fuel demand also rises in non-OECD countries, reflecting increased freight activity. In OECD nations, gasoline demand stabilizes due to higher vehicle efficiency and the penetration of electric vehicles (EVs), which reduce reliance on internal combustion engines.

• Petrochemicals: Feedstock demand for naphtha and other liquid hydrocarbons continues to expand, particularly in Asia. Countries like India and Vietnam invest in petrochemical infrastructure to support economic growth, while developed nations focus on chemical recycling and bio-based alternatives.

• Industrial Use: Industrial consumption grows modestly, supported by manufacturing and construction activity in emerging economies. In OECD nations, decarbonization initiatives temper growth as industries adopt greener technologies.

3. Oil Inventories

Global Inventory Trends:

• Global crude oil inventories are expected to draw down in Q1 2025 before rising through mid-2026 due to supply growth outpacing demand.

• OECD Commercial Inventories: Stocks are projected to end 2025 at 2.9 billion barrels, slightly above the five-year average, before declining marginally in 2026.

U.S. Strategic Petroleum Reserve (SPR):

• SPR levels remain stable after significant releases in 2022 and 2023. There are no additional large-scale releases planned through 2026.

4. Infrastructure Developments

Pipelines:

• The Transmountain Expansion (TMX) project in Canada increases oil takeaway capacity, improving access to global markets for Canadian crude.

• Expansion of U.S. pipeline infrastructure, including Permian-focused projects, enhances connectivity to Gulf Coast export terminals.

Refinery Utilization:

• U.S. refinery utilization remains strong, with several planned expansions aimed at increasing capacity for light sweet crude processing and biofuel production.

Export Facilities:

• Gulf Coast crude export capacity expands, with new terminals coming online to accommodate growing U.S. production and exports.

5. Oil Prices

Price Outlook:

• Brent Crude: Prices average $74/barrel in 2025, down from $81 in 2024, and decline further to $66/barrel in 2026.

• WTI Crude: Prices average $70/barrel in 2025, falling from $77 in 2024, and drop to $62/barrel in 2026.

Key Drivers:

• 2025: Downward pressure from supply growth and inventory builds offsets demand growth.

• 2026: Continued supply growth and subdued demand increases drive further price declines.

Market Risks:

• OPEC+ production decisions and geopolitical tensions in the Middle East remain key uncertainties.

• Economic slowdowns in major consuming regions could reduce demand and amplify price declines.

Conclusion

The January 2025 STEO emphasizes a shifting balance in oil markets, with supply growth outpacing demand through 2026. Traders should watch for key developments in OPEC+ policies, inventory trends, potential U.S. tariffs, and infrastructure projects that may influence prices and trading strategies. Lower prices and ample supply create opportunities but also highlight the need for careful market analysis.

THIS REPORT WAS FULLY WRITTEN BY THE CHATNRG NATGAS AGENT