Hi YXI friends,

Since early December, USO has been moving higher from $70 to $82. It has had a big impact on bond yields through higher inflation expectations. This has not only driven a higher US Dollar, but also had a severe impact on equities.

The main question we try to tackle today is how will oil prices evolve in 2025? We look through a whole host of global supply and demand factors, with detailed price technical analysis at the end.

An early spoiler: while the fundamental factors suggest a mixed outlook for oil, price technicals point to further upside.

Now, let’s dive in!

Table of Contents

• 1. Global Supply & Demand In 2025

• 2. OPEC+ vs Non-OPEC+ Productions

• 3. Iran Exports Have Been Rising

• 4. Russia Sanctions: Two Birds One Stone?

• 5. A Cold Winter In US and Europe

• 6. China Demand Could See Weakness

• 7. USO Price Technicals

• 8. A Final Note On Trading

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. Global Supply & Demand In 2025

International Energy Agency (IEA) estimates that the global oil supply will rise by 1.9 million barrels per day (mb/d) in 2025, reaching 104.8 mb/d. This is without accounting for the unwinding of OPEC+ cuts that has been postponed to April.

In terms of demand, global oil consumption is projected to rise by 1.1 mb/d in 2025 to 103.9 mb/d. This means the projected supply is about 900 kb/d higher than demand in 2025.

2. OPEC+ vs Non-OPEC+ Productions

In December, OPEC+ postponed the start of increasing oil output to April, while also extending the full unwinding of cuts to the end of 2026.

Currently, OPEC+ are holding back 5.86 mb/d of output (over 5% of the current demand). In terms of the timeline, unless another delay is agreed, OPEC+ will start unwind 2.2 mb/d of cuts over 18 months starting from April (130 kb/d). At the end of 2026, the group will start unwinding the remainder 3.66 mb/d of cuts.

If OPEC+ sticks to their new timeline, the global oversupply could widen to 2 mb/d in 2025 (900k from current projection + 1.1 mb/d of cut unwinding in April-December).

Notably, outside of OPEC+, oil supply will increase by 1.5 mb/d in 2025, led by US, Brazil, and Canada.

3. Iran Exports Have Been Rising

Iran produced 3.4 mb/d in November, about 3% of the global supply, a similar figure to UAE (3.24 mb/d).

Despite US sanctions, Iran has developed counter-sanction capabilities, with a dark fleet that can bypass restrictions and sell oil to China. According to Kpler, Iran exported as much as 1.8 mb/d in October, 90% of which went to China. The main method used involves 3 vessels and 2 stops. The first tanker vessel transfers crude just outside the Strait of Hormuz in the Gulf of Oman, while the second vessels bring it to the South China Sea, before a third China-bound vessel takes over with the tag “Malaysian crude”.

Iranian Crude Exports

It is unclear how far Trump is willing to go in terms of conflicts with Iran, ranging from more intense sanctions (e.g. cracking down on the dark fleet network) to direct military involvement.

The key question is what what happens to oil prices if Iran loses half of its exports (circa 0.9 mb/d) due to a greater crackdown by the US?

The answer may be not a huge deal given the oversupply we shall see in 2025, a gap that can be readily filled by growing US exports (which Trump will negotiate with China) and OPEC+ spare capacity. It helps explain why crude prices were relatively calm in most of October and November.

4. Russia Sanctions: Two Birds One Stone?

In November 2024, Russia produced 9.25 mb/d higher than Saudi Arabia’s 9.04 mb/d, the top producer of OPEC.

This month, US has imposed the broadest package of sanctions targeting Russia’s oil and gas, in an effort to set up negotiations for a peace deal in Ukraine. The sanctions have been imposed on oil producers Gazprom Neft and Surgutneftegas as well as 183 oil tanker vessels.

This has pushed WTI to $78 per barrel and Brent to $81, although WTI has already been rising since early December from a low of $71.

The biggest buyers of Russian oil are India and China.

Apart from motivating Russia towards a peace deal, the sanctions could give Trump further leverage in pushing China to buy more US exports. The US State Department said US, Guyana, Canada and Brazil could fill in for any lost Russian supply, with new volumes of oil coming online this year.

5. A Cold Winter In US and Europe

The US has recently suffered a big drop in temperature due to “a blast of Arctic air”. Regions like Minneapolis and Chicago experienced single digit to low-teens (Fahrenheit) in early January, well below historical averages.

Meanwhile, Europe is also experiencing one of their colder winters, with London, Paris, and Berlin seeing average temperatures below zero in early January.

The cold spell across the US and Europe has pushed up heating demand. JP Morgan expects the global oil demand to increase by 1.6 mb/d year-over-year in Q1, primarily for heating oil, kerosene, and LPG.

6. China Demand Could See Weakness

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