Oil Market Report - March 2025

Crude oil prices experienced a month of notable volatility in March 2025, shaped by a shifting balance between bearish macroeconomic indicators, geopolitical risk premiums, and evolving supply-side expectations.

EXECUTIVE SUMMARY

Crude oil prices experienced a month of notable volatility in March 2025, shaped by a shifting balance between bearish macroeconomic indicators, geopolitical risk premiums, and evolving supply-side expectations. Throughout the month, the crude oil market exhibited several distinct trends: a sharp sell-off in the first five trading days, a choppy stabilization phase through mid-month, and a sustained recovery from March 19 onward. Brent and WTI crude benchmarks moved in tandem throughout the month, exhibiting distinct phases of weakness and strength, although the latter showed somewhat weaker performance over the month relative to Brent. Despite intra-month volatility, Brent ended March on a moderately higher footing relative to its start. From the February close of $72.81 to the March 26 (the last reported day at the time of writing) close of $73.79, Brent posted a modest gain of $0.98 or +1.35%, as for the front-month contract. The WTI futures declined from $69.76 to $69.65 over the same span, effectively staying flat (-$0.11 or -0.16%), reflecting relative weakness in inland U.S. pricing due to persistent inventory builds earlier in the month. On a monthly average basis, Brent crude traded around $71.02, down roughly 5.2% from February’s $74.92 average. WTI averaged $67.58, the same 5.2% decline from February’s $71.29 average, highlighting that despite the late-month rebound, prices had spent most of March below their prior-month levels.

With OPEC+ proving responsive to price signals and Washington doubling down on sanctions diplomacy, the month ahead is likely to remain volatile, with risk premiums playing an outsized role in shaping the crude prices trajectory. From a technical perspective, Brent's drop below the $70 per barrel level in early March is a very troubling signal, even despite the subsequent recovery to $74, which can be interpreted as a retest from below of the previously broken support level. On the other hand, the market's decline to multi-month lows at the beginning of March could also be viewed as a "bear trap," especially given that prevailing market sentiment, judging by the commentaries, remains negative. From a fundamental standpoint, the outlook for the coming month remains highly uncertain as well. On the one hand, the actual increase in production by OPEC+ countries in April is expected to be quite limited, and considering the recent decisions by President Donald Trump regarding Venezuela, total OPEC+ exports may even decline compared to March. On the other hand, the negative economic consequences of the trade wars initiated by the Trump administration may begin to manifest in April, which could well lead to further downward revisions in oil demand growth forecasts for the current year. Under such circumstances, we believe the best course of action is to stay on the sidelines and withdraw our recommendation to buy Brent/WTI crude futures, even if they retest their recent lows. At the same time, current levels around $73–74 for Brent offer a good opportunity to exit previously opened long positions.

World oil supply rose by 240 kbd in February 2025 to 103.3 mbd, according to the data of the International Energy Agency, as Tengizchevroil ramped up its long-delayed Tengiz expansion project in Kazakhstan, pushing country’s output to all-time highs. Elsewhere, Iran and Venezuela boosted flows ahead of tighter sanctions. Venezuelan supply is expected to decline from April, when Chevron General License to operate in the country expires. At the same time, the increase from the eight OPEC+ members party to the voluntary cuts agreed in November 2023 may be less than 50 kbd, as only Saudi Arabia and to a much lesser extent, Algeria have room to raise production to the new targets. The other members party to the deal collectively overproduced by 1.2 mbd in February, according to IEA estimates. Meantime, non-OPEC+ production is set to rise by 1.5 mbd in 2025, led by the Americas. Following a 770 kbd output decline last year, OPEC+ output could hold steady in 2025 if voluntary cuts are maintained after April. The United States is currently producing at record highs and is forecast to be the largest source of supply growth in 2025, followed by Canada, Brazil and Guyana. Proposed US tariffs on Canada and Mexico, set to take effect on 1 April, may impact flows and prices from the two countries that accounted for roughly 70% of US crude oil imports last year. Meanwhile, the latest round of sanctions on Russia and Iran has yet to significantly disrupt loadings, even as some buyers have scaled back purchases.

The U.S. Energy Information Administration provided even more optimistic numbers of global oil production growth in February and estimated it as equal to +0.82 mbd as compared to the previous month, implying a 0.8% MoM expansion. This surge not only marked the new record level of output over the history but also reversed a two-month decline in output. The month-over-month expansion was the fastest observed in the last four months, underscoring a renewed momentum in the global supply. On a year-over-year basis, global production advanced by 1.94 mbd, a 1.9% YoY increase, continuing a steady five-month upward trend. The reported figure also stood significantly above historical norms, exceeding the five-year average for this month by 5.43 mbd, or +5.5%, further indicating a robust growth in total oil supply around the world even despite to OPEC+ production cut measures.

OPEC crude oil production in February 2025 saw a notable expansion, as per cartel’s own data, with total output rising by 182 kbd from the previous month, reflecting a 0.7% MoM increase. This marked the highest production level recorded in the past 15 months, underlining a robust recovery in supply, despite the agreed unwinding of voluntary cuts hasn’t been started yet. Furthermore, the month-on-month growth rate was the strongest in four months. On an annual basis, the cartel's collective crude output was up by 289 kbd, representing a 1.1% YoY increase compared to the same period last year. This sustained year-over-year growth extended for the third consecutive month. However, when placed in a broader historical context, the production remained 462 kbd below the five-year average for February, highlighting a 1.7% deficit relative to typical seasonal levels.

The eight OPEC+ countries, which previously announced additional voluntary adjustments in April and November 2023, namely Saudi Arabia, Russia, Iraq, the United Arab Emirates, Kuwait, Kazakhstan, Algeria, and Oman re-affirmed on March 3, 2025, their decision agreed upon on December 5, 2024, to proceed with a gradual and flexible return of the 2.2 mbd voluntary adjustments starting on April 1, 2025, while remaining adaptable to evolving conditions. Accordingly, this gradual increase may be paused or reversed subject to market conditions. Nevertheless, currently, the OPEC+ estimates the market outlook as positive and the market fundamentals as healthy enough to begin to normalize its production quotas. As per the agreed schedule, the process of these voluntary cuts unwinding will continue until the end of December 2026.

Non-OPEC oil producers recorded a notable rebound in February 2025, halting a two-month downtrend in monthly output. Total oil production among non-OPEC countries rose by 790 kbd, marking a 1.1% MoM increase and establishing the highest production level in three months. The February figure not only signified the strongest monthly growth rate observed in the past year, but also reinforced the underlying resilience in the group’s supply fundamentals. On an annual basis, the non-OPEC output advanced by 1.28 mbd, or +1.8% YoY, compared to February 2024. This year-over-year gain brought the production 4.4 mbd above the five-year seasonal average, translating into a substantial 6.6% increase and signaling robust structural growth in several key producing regions.

Total oil supply in the United States surged in February 2025 by 483 kbd from the previous month, marking a 2.1% MoM increase. This robust growth not only interrupted a brief two-month downward streak but also propelled the country's total oil output to its new highest level on records of 23.10 mbd. The monthly gain was the sharpest observed in the past year, underscoring a notable acceleration in domestic production momentum. On a year-over-year basis, total output expanded by 945 kbd, a 4.3% increase compared to February 2024. This annual uptick extended the positive YoY trajectory into its fifth consecutive month. When measured against the five-year historical average for February, the reported output stood 3.43 mbd higher—an impressive 17.4% increase, emphasizing the structural strength and recovery of the U.S. upstream sector.

Production of shale oil in the United States, however, showed more modest monthly growth in February than the overall U.S oil supply, but sustained long-term strength. Output rose by 33 kbd compared to January, a gain of just +0.3% MoM. Despite the marginal month-over-month increase, it was enough to bring shale oil production to its highest level in three months, continuing a modest recovery trajectory. On an annual basis, however, shale oil remained robust—up 463 kbd from February 2024, a 4.6% YoY increase. This marked the 46th consecutive month of year-over-year expansion for shale, underlining its centrality in the domestic oil narrative. Compared to the five-year February average, shale volumes exceeded the norm by 1.68 mbd, a remarkable 19% increase.

According to the International Energy Agency, growth in global oil demand is set to accelerate to just over 1.0 mbd in 2025, from 830 kbd in 2024 and 100 kbd less than the agency’s prior estimate, reaching 103.9 mbd. The macroeconomic conditions that underpin IEA’s oil demand projections deteriorated over the past month as trade tensions escalated between the United States and several other countries. New US tariffs, combined with escalating retaliatory measures, tilted macro risks to the downside. Recent oil demand data have underwhelmed, and growth estimates for 4Q24 and 1Q25 have been marginally downgraded to around 1.2 mbd, with data for both advanced and developing markets coming in below projections. Nevertheless, global oil demand growth is still expected to be stronger than in 2024, boosted in part by lower oil prices. Asian countries will account for almost 60% of gains, led by China where petrochemical feedstocks will provide the entirety of growth as demand for refined fuels reaches a plateau.

The U.S. Energy Information Administration printed strong numbers of global oil consumption growth in February 2025, which completely offset demand weakening in January and, therefore, came in tact with IEA’s assessments. According to the IEA, global oil consumption surged in February 2025 by 2.40 mbd compared to the previous month, marking a robust 2.3% MoM increase. This notable expansion pushed the overall oil demand around the globe to its new all-time high above 105 mbd. The monthly growth rate was the fastest recorded over the past year, underlining the strong momentum behind oil demand. On an annual basis, the consumption was up by 1.36 mbd, representing a 1.3% YoY rise. Although this sustained a 9-month trend of year-over-year expansion, it was also the slowest rate of annual growth observed in the last three months. Against the backdrop of historical trends, February’s global demand for oil stood 5.80 mbd above the five-year seasonal average, a 5.8% uplift.

Global observed oil stocks fell by 40.5 mb in January 2025, according to the most recent data of the International Energy Agency, of which 26.1 mb were products. Non-OECD crude stocks plunged by 45.3 mb, dominated by China where imports declined. Total OECD stocks rose by 11.2 mb, boosted by a 25 mb build in commercial crude inventories. Oil on water fell by 6.7 mb. However, preliminary data for February 2025 show total global oil stocks rebounded, lifted by an increase in oil on water.

As for December 2024, detailed statistics for which were also revealed by the IEA, total OECD oil stockpiles increased by 0.7 million tons from the prior month, marking a 0.2% MoM gain. This expansion brought the inventories to their highest level in three months, extending a two-month streak of growth. Notably, the pace of the month-on-month increase was the most rapid observed in 7 months. On an annual basis, the inventories rose by 1.2 million tons, representing a 0.3% YoY increase compared to December 2023—the fastest year-on-year expansion in 6 months. However, despite this relative strength, total OECD inventories remained structurally lower than historical norms, standing 36.1 million tons below the five-year average for this time of year, reflecting a persistent supply deficit of 7.2%.

Total U.S. oil inventories saw a modest decline of 1.22 mb in February 2025 from the previous month, marking a 0.1% MoM contraction. This drop extended a two-month downward trend and pushed the total stocks to their lowest levels in 10 months. However, on an annual basis, the inventories expanded by 37.28 mb, or +2.4% YoY, sustaining a 10-month streak of year-over-year growth. Notably, this was the fastest annual increase in the past 6 months. Still, total U.S. oil inventories remain significantly below historical norms, trailing the five-year average for February by a considerable 144.82 mb, implying an 8.2% deficit.

Meantime, the latest data on crude inventories at Cushing, Oklahoma, highlighted a notable reversal in storage trends. February 2025 saw a sharp increase of 4.75 mb compared to the previous month, translating to an impressive 22.7% MoM rise. This surge marked a decisive break from the three-month streak of consecutive drawdowns and propelled inventories to their highest level in 6 months from a more than 10-year low. The magnitude of the monthly increase was particularly striking, as it represented the most rapid pace of growth recorded in the past 14 months. Despite the strong month-over-month recovery, the broader year-over-year trend continued to reflect a structural downtrend. Compared to February 2024, Cushing’s inventories remained lower by 5.27 mb, a 17.0% YoY decline. While this marked the fourth straight month of year-over-year contraction, the rate of decline has moderated. From a historical perspective, stock levels at Cushing were still trailing the five-year seasonal average by a considerable margin, standing 10.30 mb lower, which equates to a 28.6% deficit.

Global offshore stockpiles of oil registered a modest monthly decline of 1.01 mb in February 2025, representing a 1.4% MoM contraction from January, according to the data, provided by Vortexa, a cargo-tracking company. However, in a notable reversal of the prolonged downward trajectory, year-over-year the overall floating oil inventories around the world surged by 10.89 mb, marking a robust 17.7% YoY increase—the sharpest pace of annual expansion in the past 17 months. This upturn effectively interrupted a 16-month-long streak of yearly declines. Despite the annual growth, the total floating inventories remained 3.65 mb, or -4.8%, below their five-year seasonal average, underscoring continued structural tightness on the oil market.

AC - Oil Market Report - Mar-2025.pdf

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