Vi e w p o i n t | 28 Jan 2026 15:25:03 ET │ 12 pages Oil Monitor Why are oil prices so strong, despite a supposed global oversupply and production returning from Kazakhstan and the US? CITI'S TAKE Oil prices can stay more elevated than many had expected, despite markets starting the year anticipating large oversupply. Recent events cannot fully explain the price strength: Brent is ~$68/bbl at the time of writing, far from the ~$50/bbl price that a 2-mb/d oversupplied market could imply. We had long expecte ...

Oil Price Movement - Oil prices fell in Asian trade, with Brent down 21 cents to $63.55 per barrel and WTI down 15 cents to $59.04 per barrel, as concerns about supply risks eased after the likelihood of a U.S. strike on Iran receded [1] - Both Brent and WTI had risen to multi-month highs earlier in the week due to protests in Iran and U.S. President Trump's signals regarding potential military action [2] Market Sentiment and Supply Outlook - Analysts noted that Brent prices have declined but remain higher than a week ago, influenced by Trump's statement to hold off on military strikes on Iran, indicating potential for greater volatility in oil prices due to political upheaval in Iran [3] - Despite geopolitical risks, analysts remain bearish on the expectation of longer supply in the market this year, suggesting that market sentiment is short-lived when fundamentals appear stable [4] Future Demand and Supply Projections - OPEC projected that oil supply and demand would remain balanced through 2026, with demand expected to rise in 2027 at a similar pace to this year [5] - Shell's 2026 Energy Security Scenarios presented a bullish outlook for energy demand, estimating that primary energy demand by 2050 could be 25% higher than last year [6]

Summary of Key Points from the Conference Call Industry Overview - The focus of the conference call is on the oil industry, particularly regarding the geopolitical situation in Venezuela, Iran, and the ongoing Russia/Ukraine conflict, which are currently supportive for oil prices but may lead to bearish trends in the long term [1][2]. Core Insights and Arguments - **Venezuelan Oil Supply**: The US administration's "quarantine" on Venezuelan crude oil exports is expected to continue until satisfactory actions are taken by the Venezuelan government. Venezuelan oil exports were halved to approximately 500,000 barrels per day (b/d) in December 2025 due to a US naval blockade [2]. - **Future Projections**: The baseline scenario anticipates Venezuelan oil output to begin rising in the fourth quarter of 2026, with an increase of about 300,000 to 500,000 b/d from mid-2026 to the end of 2027. This increase is contingent on political stability and successful elections in Venezuela, which are expected by summer 2026 [2][5]. - **OPEC+ Response**: OPEC+, led by Saudi Arabia, is likely to cut output to maintain Brent crude prices between $55 and $60 per barrel if there is a significant rise in inventories due to increased Venezuelan production [2][5]. - **Investment Needs**: A substantial investment of $80 to $100 billion is required to restore Venezuelan oil output to approximately 2 million b/d over eight years. The Orinoco Belt contains the majority of Venezuela's proven reserves, estimated at over 300 billion barrels, which is nearly 20% of global reserves [10]. - **Technical Constraints**: Despite vast reserves, the lack of a stable investment climate and infrastructure means that large-scale production increases will take years rather than months. Historical production data shows a peak of around 3.7 million b/d in the 1970s, with current production just over 1 million b/d [7][10]. - **Short-term Gains**: Near-term production increases are expected to come from blending and diluent availability rather than political changes. Access to naphtha for blending could unlock up to 200,000 b/d of incremental output without significant new investments [8]. Additional Important Insights - **Governance and Stability**: The political situation in Venezuela remains uncertain, and any meaningful increase in oil supply will depend on governance reforms and the establishment of a stable government that can attract investments [6][12]. - **China's Oil Procurement**: If China does not receive its usual volumes of Venezuelan oil, it may seek alternative heavy crude oils from the open market, which could impact global oil prices [14]. - **Downstream Constraints**: Venezuela's refining capacity is currently operating at about 25% of its nameplate capacity, reinforcing the country's dependence on crude exports and imported refined products [11]. This summary encapsulates the key points discussed in the conference call, highlighting the complexities and uncertainties surrounding the Venezuelan oil market and its implications for global oil prices.

Summary of Key Points from the Conference Call Industry Overview - The report focuses on the **Global Oil Industry**, particularly the dynamics of **OPEC+** and non-OPEC+ supply and demand forecasts for 2025 and 2026. Core Insights and Arguments 1. **Supply and Demand Balances**: - The overall oil market is projected to have a surplus of **1.9 million barrels per day (Mb/d)** for both 2025 and 2026, with a looser balance by **290 kb/d** for 2025 and **260 kb/d** for 2026 [2][18][61]. - Inventory builds averaged **1.2 Mb/d** from 1Q25 to 3Q25, with missing barrels reported at **0.8 Mb/d** [2][61]. 2. **Demand Forecasts**: - Demand growth estimates vary: IEA forecasts **0.8 Mb/d** for 2025, EIA at **1.1 Mb/d**, and OPEC at **1.3 Mb/d** [3][36]. - UBS maintains its estimates at **0.9 Mb/d** for 2025 and **1.1 Mb/d** for 2026, incorporating a better global economic outlook but offset by weaker Chinese demand [29][64]. 3. **Non-OPEC+ Supply Growth**: - Non-OPEC+ supply growth is revised up by **100 kb/d** for 2025 to **1.5 Mb/d** and by **180 kb/d** for 2026 to **0.6 Mb/d**, driven by resilient US production [4][39][69]. - US liquids growth is expected to be **0.6 Mb/d** in 2025 and **0.1 Mb/d** in 2026, reflecting improved drilling efficiency and rig activity [51][55]. 4. **OPEC+ Production Adjustments**: - OPEC+ output decreased by **400 kb/d** month-on-month in October, primarily due to maintenance in Kazakhstan [5][94]. - The eight countries implementing voluntary cuts paused production increases in 1Q26, with plans to resume unwinding cuts from April 2026 [68][98]. 5. **Geopolitical Risks**: - Geopolitical factors, including sanctions on Russia and Iran, pose significant risks to the oil market [65][66]. - Russian crude exports have decreased by **100 kb/d** to **4.4 Mb/d**, with major importers reducing their imports [65]. 6. **Price Forecasts**: - Brent prices are expected to remain in the low-$60s in the near term, with potential upside to **$70/bbl** due to supply disruptions or better OPEC+ compliance [9][10]. - A downside scenario could see Brent prices drop below **$60/bbl** if OPEC+ production increases continue amid a global economic slowdown [11]. Other Important Insights - The report highlights the mixed revisions in demand forecasts from various agencies, with the IEA being more bullish compared to the EIA's bearish outlook [3][36][22]. - The concept of "missing barrels" suggests that actual demand may be underestimated, indicating that the market may not be as oversupplied as it appears [25][61]. - The long-term outlook anticipates peak oil demand around **2030**, with a plateau expected rather than a sharp decline thereafter [71]. This summary encapsulates the critical aspects of the conference call, providing a comprehensive overview of the current state and future expectations of the global oil market.

Core Insights - A shadow fleet of sanctioned oil from Russia, Iran, and Venezuela is growing, potentially impacting global oil prices depending on whether these barrels find buyers [1][8] Group 1: Current Situation of Sanctioned Oil - Russian oil shipments are facing cancellations from Chinese and Indian buyers, who are shifting to Middle Eastern and American oil while seeking ways to bypass sanctions [2] - Iranian oil in floating storage has doubled to over 36 million barrels from August to November, while deliveries to China have decreased to less than 1.2 million barrels daily [3] - Floating storage in Asia has increased by 20 million barrels over the past two months, reaching a total of 53 million barrels, primarily from sanctioned producers [4] Group 2: Floating Storage Data - Analysts indicate that the increase in shadow crude volumes in Asia is due to high volumes at sea and difficulties in processing arrivals at Shandong independent refineries [5] - OilX reports that floating storage in Asia rose to 70 million barrels by the end of October, up from 50 million barrels in mid-October [6] - Vortexa estimates that Iranian crude at sea totals 161 million barrels, a 22.5 million barrel increase since September, while Venezuelan crude on water is at 72.3 million barrels, up by 6.6 million barrels [7] Group 3: Potential Market Impact - The presence of these sanctioned barrels could complicate the global supply situation, as their sale would exacerbate an already excessive supply, while remaining stranded could positively affect prices [8]

Core Insights - Oil prices have surged approximately 2% following a Ukrainian attack on Russia's Novorossiysk port, raising supply concerns in the market [1] - Brent crude prices rose by $1.50 (2.4%) to $64.51 per barrel, while US West Texas Intermediate increased by $1.57 (2.7%) to $60.26 per barrel [1] - The Novorossiysk port handled 3.22 million tonnes (mt) of crude oil in October, equating to 761,000 barrels per day, along with 1.79mt of oil products [1] Oil Supply and Demand Dynamics - Earlier in the week, both Brent and WTI benchmarks experienced a decline after the Organisation of the Petroleum Exporting Countries (OPEC) projected a balance between global oil supply and demand by 2026, contrasting previous expectations of a supply shortage [2] - The US Energy Information Administration reported a rise in crude inventories by 6.4 million barrels to 427.6 million barrels for the week ending 7 November [2] Sanctions and Market Impact - Ongoing sanctions against Russia have complicated global oil flows, with the US announcing a ban on transactions with Russian oil companies Lukoil and Rosneft, effective after 21 November [3] - JPMorgan estimates that approximately 1.4 million barrels per day of Russian oil, nearly one-third of the country's seaborne export capacity, is currently stored on tankers due to sanctions delaying unloading operations [3] Corporate Developments - US private equity firm Carlyle is reportedly considering options for acquiring Lukoil's overseas assets, which account for about 2% of global oil production [4] - Lukoil's planned asset sale to Swiss-based Gunvor was halted prior to the 21 November sanctions deadline [4] - Lukoil's international holdings represent around 0.5% of worldwide oil output and are valued at approximately $22 billion according to 2024 filings [5]

Investment Rating - The report provides a comprehensive outlook on the global oil and gas industry, indicating a cautious but optimistic investment rating for major oil companies, reflecting the anticipated fluctuations in oil prices and demand dynamics [1]. Core Insights - The report forecasts Brent crude oil prices to average $68.22 per barrel in 2025, with a gradual decline expected in subsequent years, indicating a potential stabilization in the market [3]. - Global oil demand is projected to grow by 0.9 million barrels per day (Mb/d) in 2025 and 1.1 Mb/d in 2026, driven primarily by non-OECD countries, particularly China and India [26][32]. - The global oil supply is expected to increase by 2.0 Mb/d in 2025 and 1.6 Mb/d in 2026, with significant contributions from both OPEC+ and non-OPEC+ producers [43][46]. Summary by Sections Global Oil Market Outlook - The report outlines a balanced view of the oil market, highlighting both supply and demand factors that will influence pricing and market stability [2]. UBS Oil Price Forecast - The forecast for Brent and WTI crude oil prices shows a downward trend from 2024 to 2026, with Brent expected to average $68.22 in 2025 and WTI at $64.84 [3]. Demand Analysis - Global oil demand is anticipated to reach 104.9 Mb/d in 2025, with significant growth in regions outside of OECD, particularly in Asia [23][26]. - The report notes that US gasoline demand is approximately 2% lower than the previous year, indicating a shift in consumption patterns [35]. Supply Analysis - Global oil supply is projected to grow significantly, with OPEC crude production expected to average 28.7 Mb/d in 2025, reflecting a recovery in output levels [43][49]. - The US is expected to lead supply growth, particularly from the Permian Basin, with a forecasted increase of 0.1 Mb/d in 2025 [81][87]. OPEC+ Dynamics - The report discusses OPEC+ compliance and production strategies, indicating a cautious approach to managing output levels in response to market conditions [54][59]. - OPEC's spare capacity is projected to remain around 4.4 Mb/d in 2026, suggesting limited room for additional production increases [65]. Long-term Outlook - The report anticipates a decrease in final investment decisions (FIDs) for new projects in 2025, which may impact future supply growth [104]. - Long-term oil price forecasts suggest a range of $70 to $80 per barrel by 2030, influenced by various geopolitical and economic factors [115].

Summary of the Oil Market Analysis Industry Overview - The analysis focuses on the oil industry, particularly the dynamics surrounding OPEC+ production decisions and global oil supply and demand forecasts. Key Points and Arguments 1. **OPEC+ Production Increase**: OPEC+ has decided to raise required production by 0.14 million barrels per day (mb/d) for November, consistent with previous expectations, indicating a cautious approach to market conditions [2][10][36]. 2. **Price Forecasts**: The Brent/WTI price forecast remains unchanged at $64/$60 for Q4 2025 and $56/$52 for 2026, reflecting stable expectations despite market fluctuations [2][18][19]. 3. **Supply Surplus Expectations**: A global oil surplus is anticipated to average 2.0 mb/d from Q4 2025 to Q4 2026, driven by strong supply growth, particularly from the US and Iraq, despite a downgrade in Russian production [2][21][30]. 4. **Global Supply Growth**: Global oil supply is expected to rise by 4.1 mb/d (4%) in 2025, with OPEC+ contributing nearly half of this growth, alongside significant increases from Brazil [2][23][26]. 5. **OECD Stock Absorption**: OECD commercial stocks are projected to absorb over 30% of the global builds in 2025-2026, with an increase of 0.65 mb/d expected as high volumes of oil in transit arrive [2][45][48]. 6. **Price Dynamics**: The analysis predicts a decline in oil prices as OECD inventories rise, with Brent prices expected to fall to the low $50s by the end of 2026 [51][56]. 7. **Risks to Forecast**: The risks to the price forecast are two-sided but skewed to the upside, particularly due to potential declines in Russian production and changes in global spare capacity [7][56][61]. Additional Important Insights 1. **Global Demand Growth**: Global oil demand is expected to grow by 1.0 mb/d in both 2025 and 2026, an increase from previous estimates of 0.9 mb/d, influenced by stronger economic forecasts for China and the US [35]. 2. **Russia's Production Challenges**: Russian oil production is projected to decline to 8.5 mb/d by December 2026, influenced by economic pressures and operational challenges, which could significantly impact global oil prices [30][57][61]. 3. **Market Conditions**: The report emphasizes that the current market conditions are healthy, with low oil inventories, which supports the rationale behind OPEC+'s cautious production adjustments [36][41]. This comprehensive analysis provides a detailed outlook on the oil market, highlighting the interplay between supply dynamics, price forecasts, and geopolitical factors influencing production decisions.

Investment Rating - The report indicates a lower outlook for Brent prices, with forecasts reduced by $5-10 per barrel due to increased OPEC supply and anticipated market surplus [1][14][26]. Core Insights - OPEC's recent quota increase of 411 kb/d in May and another similar increase in June suggests a trend towards higher production levels, leading to a projected market surplus of approximately 1.1 mb/d in 2H25 and 1.9 mb/d in 2026 [10][14][26]. - The Brent price is expected to decline to around $55 per barrel by 1H26, down from a previous estimate of $65 per barrel, reflecting the anticipated oversupply in the market [14][26][30]. - Historical parallels are drawn to the late 1997 downturn, where a similar increase in OPEC production coincided with a significant demand slump, resulting in a drastic price decline [21][22][25]. Supply and Demand Summary - OPEC supply is projected to grow by an additional 0.4 mb/d in both 2025 and 2026, while non-OPEC supply is expected to increase by 1.2 mb/d in 2025 and 1.1 mb/d in 2026, leading to a total liquids balance surplus of approximately 1 mb/d in 2025 and 1.9 mb/d in 2026 [26][27][30]. - Total oil liquids demand is forecasted to grow by 0.7 mb/d in 2025 and 0.6 mb/d in 2026, which is significantly outpaced by supply growth [26][27][30]. Price Forecasts - The report outlines a cautious price outlook, with Brent prices expected to remain at the lower end of the forecast range, likely settling in the mid-$50s per barrel by mid-2026 [29][30][36]. - The relationship between oil prices and shale break-evens suggests that prices may need to fall below the mid-$50s to balance the market, depending on demand impacts from external factors such as tariffs [30][31][36].