Just a month ago, energy news focused on a surplus of oil supply and weak demand from China. Now, however, there are growing concerns about a potential supply shortage, especially after the Biden administration’s recent sanctions on Russia.
John Kemp, in a column earlier this month, highlighted the rapidly depleting U.S. crude oil inventories since mid-2024. Normally, falling inventories signal strong demand, and U.S. demand has proven resilient, even surpassing predictions by the Energy Information Administration (EIA). At one point in spring 2024, demand reached a seasonal record that was 800,000 barrels per day higher than the EIA’s estimates, surprising many experts, as reported by Reuters.
It wasn’t just the U.S. facing reduced inventories. The Organization for Economic Cooperation and Development (OECD) also saw faster-than-expected depletion of crude oil stocks. The International Energy Agency (IEA), which had previously underestimated the supply-demand balance, was particularly concerned about these trends.
The impact of Biden’s sanctions on oil prices also suggests that the surplus narrative might not align with reality. If the market had truly been oversupplied, the sanctions wouldn’t have significantly affected global prices.
In November, the IEA predicted that global oil supply would exceed demand by 1 million barrels per day, even with OPEC+ maintaining its production cuts. However, in January, the agency acknowledged a possible supply shortfall due to factors like weather, sanctions, and seasonal demand spikes. The IEA warned that such disruptions could quickly deplete oil stocks. Notably, the IEA did not mention President Trump’s plan to refill the U.S. Strategic Petroleum Reserve, which could drive prices up unless managed carefully by the new administration.
The general expectation has been that non-OPEC supply, especially from the U.S., would surge in 2024, compensating for OPEC+ cuts and preventing a supply deficit. However, U.S. oil companies have repeatedly indicated they have no plans for such an increase, a point largely overlooked by analysts but noticed by oil traders.
Kemp reported that bullish bets on crude oil had surged to a nine-month high as traders anticipated the impact of sanctions on Russian and Iranian crude. In the five weeks leading up to December 10, speculators bought the equivalent of 330 million barrels of crude, pushing their total exposure to 553 million barrels—its highest level since April 2024.
Despite these bullish expectations, oil prices dropped this week after President Trump declared a national energy emergency and signed executive orders to boost U.S. oil and gas production. The EIA also maintained a bearish outlook, reiterating its prediction that strong global production growth and slower demand would push prices down.
Meanwhile, Saudi Aramco grew more optimistic about oil demand. The company’s CEO, Amin Nasser, predicted that demand would grow by 1.3 million barrels per day in 2024, reaching an all-time high of 1.6 million barrels per day, speaking at the World Economic Forum in Davos.
The IEA also revised its demand growth forecast for this year, raising it from 940,000 barrels per day to 1.05 million barrels per day, citing a better economic outlook. This revision suggests that the energy transition may not be reducing oil demand as much as previously expected, despite earlier predictions to the contrary.
While there is a possibility that oil prices could sharply decline this year, that scenario hinges on Trump removing U.S. sanctions on Russia. If that happens, sanctions on Iran might have a minimal market impact. However, the likelihood of such a move remains uncertain, leaving global oil supply constrained and the expected production growth rate unclear.
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