Why are oil traders so pessimistic about 2025?

Even as oil prices swirl amid the turmoil gripping the Middle East, many traders have remained resolutely pessimistic about the market outlook for next year. 

The bearishness — which could be derailed should a major escalation disrupt fuel flows — stems from a belief that supplies will exceed global demand in 2025, with increases from outside the Organization of Petroleum Exporting Countries playing a major role. That has been reinforced by all three main oil agencies paring back estimates for demand next year.

Ever since the International Energy Agency first published its 2025 outlook in April, it has projected faster non-OPEC supply increases than consumption growth next year. The US Energy Information Administration took a similar view in seven of the last eight months. 

The bulk of the growing supplies is likely to come from four producers that have dominated non-OPEC additions in recent years — the US, Brazil, Guyana and Canada, with some boost also projected in Norway. The extra volumes come before counting any of OPEC+’s planned production boost next year, which would tap its spare capacity buffer of more than 5 million barrels a day.

On demand, the agencies have reduced growth forecasts for both 2024 and 2025. Their projections for growth this year have been cut by between 300,000 and 400,000 barrels a day since January. Forecasts of next year’s incremental demand have been reduced by between 60,000 and 200,000 barrels a day since April, the first month that all three agencies published 2025 outlooks. 

Brent oil futures traded little changed at about $74.20 a barrel at 7:25 a.m. in London. They rose as high as $81.16 earlier this month on concern that Israel might attack Iran’s oil infastructure. 

 On an outright basis, demand forecasts for next year have been more mixed, though all three agencies reduced their 2025 consumption outlook this month. Compared with when they began publishing 2025 forecasts, the IEA and OPEC have lower numbers than they started with, while the EIA’s demand outlook for next year is actually higher than its initial projection. As of October’s report, there remains a gap of about 2 million barrels a day between the IEA and OPEC. 

In the short-term though, the picture is somewhat better. 

In its report, the IEA had a significant volume of barrels that it couldn’t account for over July and August — the most recent months for which it tallies inventory data. Those figures represent the difference between the agency’s supply-demand balances on paper and observed inventory changes based on various data sets. That suggests either a bearish revision to inventory data to make draws smaller, or a bullish revision to the agency’s supply and demand figures.