The global oil market is likely to witness the highest amount of new oil supply in a decade.
According to data analyzed by Raymond James showed projected global additions of nearly 3 million barrels daily.
Raymond James Financial, Inc. is an American multinational independent investment bank and financial services company providing financial services to individuals, corporations, and municipalities.
Bloomberg reported the Raymond James figures, noting projects such as the giant Tengiz field in the Kazakh section of the Caspian Sea—one of the largest oil discoveries in modern times and the Bacalhau field in Brazil, which has an estimated potential of 1 billion barrels of oil equivalent. Production expansions at Saudi fields will also contribute to the fresh wave of oil supply, the investment bank added.
“Investors have not fully grasped just how much new supply from projects is on deck in 2025,” Raymond James analyst Pavel Molchanov told Bloomberg. The thing is, this supply may get delayed if prices remain as depressed as virtually everyone expects them to remain this year due to the perceived imbalance between supply and demand, and indications of weak demand growth prospects.
Reuters’ Clyde Russell addressed the demand dynamics in a column this week where he argued that projections about China’s oil demand growth today did not match import figures. The demand projections were quite bullish, he noted, while import figures suggested a weakening. It does, however, bear noting that China was importing crude at record-smashing rates after the end of its pandemic lockdowns. What we are currently witnessing may in fact be a normalization of demand patterns.
Whatever the dynamics of Chinese oil imports is a sign of, forecasts for the balance between global supply and demand are all in favor of supply overhang. The only difference seems to be the size of it.
According to the latest from the U.S. Energy Information Administration, the overhang is going to be around 100,000 barrels daily.
According to Raymond James, the overhang is going to be some 280,000 bpd. The most bearish projection comes from the International Energy Agency (IEA) which expects a supply overhang of 600,000 barrels daily this year. That new supply might not make it to market in 2025.
There are already signs that the oil industry is not in a position to keep boosting production regardless of prices. U.S. industry executives have already indicated there is little appetite for a return to a drill-at-will approach. It is simply uneconomical at current oil prices, according to S&P Global’s Daniel Yergin, although Energy Secretary Chris Wight argues that new efficiency gains can make shale profitable even at $50 per barrel.
But shale has been more sensitive to international prices from the start because of its higher costs. What about those Saudi fields and their notorious low costs? Saudi Arabia is still bound by its OPEC+ production targets and it has just had to force seven other members of the group to make further production cut commitments to make up for their consistent overproduction.
This does not sound like an environment conducive to any substantial production growth—unless demand suddenly booms, that is.
A sudden boom is rather unlikely, but with the Trump administration making a fresh try to bring Iran’s oil exports down to zero, supply may yet tighten, making those new output additions Raymond James talked about more likely to materialize. As of January, Iran’s crude oil exports averaged 1.6 million barrels daily. If sanctions lead to a substantial drop in these, prices might get some breathing space—for a while. Because that additional supply is waiting in the wings.
Last year, new oil output additions came in at 800,000 barrels daily, per data cited by Bloomberg in its Raymond James report.
In this context, this year’s expected output additions look even more impressive and they also beg the question of why it is necessary to boost production at all if demand is indeed so much weaker than before.
The answer was recently provided by none other than the head of the International Energy Agency, Fatih Birol.
At CERAWeek, Birol said that the world needs upstream investments in existing oil and gas fields to support global energy security.
Many saw these remarks as a stark departure from his usual refrain over the past few years, which has focused on the perceived success of the energy transition that would eliminate the need for hydrocarbons pretty soon. Indeed, that’s exactly what they were.
“I want to make it clear there would be a need for investment, especially to address the decline in the existing fields,” Birol said. “There is a need for oil and gas upstream investments, full stop,” he added. This is the same man who said four years ago we could stop exploring for new production of oil and gas as of 2021 because we would not need them by 2030.
This is why this new supply is being developed. Demand projections have recently disappointed, not least because of the almost exclusive focus on China, but the world is still consuming massive amounts of oil—and growing, albeit at weaker than post-pandemic rates.