Hi YXI friends,

Global supply of oil started increasing in February, which have put further pressure on oil prices. With the macro concerns around a US recession and OPEC+ plan to increase supply from April, where is oil headed next? Is $90 still in play for USO?

Today, we assess the global supply and demand trend for oil as well as examine the price technicals for USO, FANG, SLB, and BEP.

Where the possibilities are more balanced and require further observation, I have put out alternative scenarios too to bear in mind.

Let’s dive in!

Table of Contents

• 1. Oil Supply and Demand

  • Crude oil production Feb 2025 vs Jan 2024, mb/d

  • WTI Futures

  • USO vs US Crude Oil Production

  • USO vs. US Crude Inventory

• 2. Price Analysis: USO, SLB, FANG, BEP

  • USO Correlations vs. US 10Y Yield, FANG, SLB, BEP

  • USO Chart

  • FANG Chart

  • SLB Chart

  • BEP Chart

DISCLAIMER: This newsletter is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.

1. Oil Supply and Demand

The IEA forecasts the global oil demand to reach 103.9 mb/d in 2025. This is marginally lower (by 0.1 mb/d) than the previous estimate. Asia is expected to drive nearly 60% of the growth in 2025, thanks to China and India.

However, the global trade tensions have raised the recessionary risks around the world, which can further slow oil demand. For example, the USD GDP for Q1 has been revised down sharply by the Atlanta Fed’s GDPNow model to -1.8% (as of March 18). Meanwhile, China has not announced specific fiscal or monetary stimulus measures that could boost immediate demand.

Crude oil production Feb 2025 vs Jan 2024, mb/d

In terms of supply, we saw a global increase by 240 kb/d in February, reaching 103.3 mb/d. The biggest contributor to the supply was Kazakhstan, by 220 kd/b, as their Tengiz expansion project ramped up output significantly.

Russia, Kuwait, and Saudi Arabia actually saw a supply drop in February.

Going into April, OPEC+ is expected to increase their supply as they unwind the voluntary production cut of the past two years. While they could introduce as much as 138 kb/d, not all of the OPEC+ members have the spare capacity or the ability to ramp up production this quickly. The biggest increase likely comes from Saudi Arabia, who enjoy an effective spare capacity of 3.1 mb/d.

WTI Futures

WTI oil futures have dropped by about $1 across the curve since our previous update. The futures remain in a downward sloping curve, known as backwardation. (The shape of the curve depends on the cost of storage plus interest rate, less the convenience yield for future deliveries.)

This shape suggests the market still sees relatively tighter supply in the nearer term compared to later this year. This is in line with our observations on the global supply and demand trends above.

USO vs US Crude Oil Production

The oil price weakness comes amidst increasing oil production in the US. US production is near record highs and forecasted to be the largest source of new supply in 2025.

USO vs. US Crude Inventory

US Crude Inventory has continued upwards in the recent weeks, further putting pressure on oil prices. The inventory level is now close to the June high. It will be interesting to see whether it starts retreating from here.

2. Price Analysis: USO, SLB, FANG, BEP

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