Where to begin

Brent crude averaged near $80 per barrel in 2024. From January to November 2025, the average hovered around $69, with the full-year average expected to land slightly below that level. This trajectory roughly matched the baseline scenario we outlined in last year's annual report, which predicted a downward shift of about $10 in the 2025 trading range compared with 2024, targeting a band of $60-85. While the highs, lows, and annual average aligned with our projections, 2025 proved to be the year with the most unpredictable variables in my years of research. Central to this turbulence is a figure destined to be discussed for a long time: Donald Trump, who took office as the 47th U.S. president on January 20, 2025. His fingerprints were on every major price swing and critical inflection point in oil markets, as his approach, guided by *The Art of the Deal*, upended the established global order. Through tariffs, sanctions, and military action, he reshaped international dynamics and influenced everything from geopolitics to the ebb and flow of crude prices.

Beyond Trump's policy-driven impact on price momentum, the core force dragging the crude complex lower in 2025 was OPEC+'s accelerated output increases. From deciding to raise output, to tripling the pace, then quadrupling it, the group completed the exit of 2.2 million barrels per day of voluntary cuts in just six months. Then, in a surprise move, it pressed ahead with unwinding another 1.65 million barrels per day of cuts in the fourth quarter. In 2025, OPEC+ injected an enormous volume of additional supply into the market. Producers were well aware this would create a glut, yet Saudi Arabia and its allies remained resolute in their rapid output growth. Although OPEC repeatedly framed the increases as a response to strong demand and a commitment to market stability, observers noticed that after more than two years of output restraint, the supportive effect of cuts on prices had waned. Faced with the inability to sustain high prices, the group pivoted to a strategy of leveraging low-cost advantages alongside proactive output increases to counter competition from non-OPEC+ producers like U.S. shale, reclaim market share, and defend its position in the global energy landscape. The trade-off was a pronounced surplus, even with buffers from geopolitical conflicts, sanctions, and emergency stockpiling, which ultimately drove the price center down by $10 from 2024 levels.

Monthly spreads in the crude market swung far more widely in 2025 than in the prior year, reflecting supply-side disruptions and uncertainty. Following Trump's re-election, his series of tariff, sanction, and geopolitical moves introduced significant volatility. In the first half of the year, sanctions on Russia and the Israel-Iran conflict sent spreads sharply higher, while OPEC+'s accelerated increases pulled them back. Overall, the market structure experienced dramatic ups and downs in 2025, gradually weakening in the second half as oversupply pressures became more evident.

After three consecutive years of decline, global refining margins rebounded in 2025. Persistent geopolitical conflicts and sanctions by the EU and U.S. against Russia disrupted product supply, repeatedly driving crack spreads higher. Notably, in October, U.S. sanctions on Rosneft and Lukoil hindered Russian refined product exports. Russia, a major exporter of products—especially diesel—saw reduced shipments, creating supply gaps in Europe and Asia. Additionally, EU sanctions on Russian refined products, including a ban effective January 2025, intensified tightness in the European market. Ukraine's targeted drone strikes on Russian refineries further eroded processing capacity and export capability. Diesel buyers like Brazil were forced to seek alternative sources, pushing global diesel prices higher. Meanwhile, new large-scale refineries in West Africa, such as Nigeria's Dangote facility, struggled with operational setbacks and labor disputes, failing to reach full capacity and adding to product supply uncertainty. Having permanently shut down some refining capacity in recent years, Western nations faced tighter product balances as the energy transition underdelivered, amplifying the supply crunch. This strength pushed U.S. and European product crack spreads to the second-highest seasonal level in five years. Although renewed efforts in late November to advance Russia-Ukraine peace talks cooled the product market, the robust crack spreads remained a defining characteristic of the 2025 oil market.

Supply Side Dynamics

Global markets faced persistent oversupply pressure in 2025 due to tepid demand and OPEC+'s accelerated production increases. According to EIA data, the global surplus averaged 1.795 million barrels per day, peaking at 4.43 million barrels per day in October. As of October 2025, global supply averaged 105.7 million barrels per day against demand of 103.9 million, up 2.6% and 0.93% year-on-year, respectively. The main culprit was supply outpacing demand. On the supply side, both OPEC and non-OPEC producers raised output. OPEC's production increased by 1.8422 million barrels per day year-on-year as it returned volumes, while non-OPEC nations, led by emerging producers like Guyana, Brazil, and Argentina, added 835,300 barrels per day—growth rates of 2.62% and 2.55%, respectively. Looking ahead to 2026, barring unforeseen events, the global balance is expected to remain in surplus, with the glut potentially widening. Most institutions currently project an oversupply of 2-2.8 million barrels per day, with consensus settling at or above 2 million. Given OPEC+'s hefty supply additions in 2025 and continued growth from Brazil, Guyana, and Argentina, sluggish demand growth will struggle to absorb such volumes, underpinning the bearish outlook. Yet, supply remains vulnerable to geopolitical shocks. As 2025 drew to a close, U.S.-brokered talks hinted at a potential Russia-Ukraine ceasefire, which could lead to sanctions relief and additional supply. Conversely, if conflict persists, Ukraine's intensified strikes on Russian energy infrastructure could curtail supply. On the demand side, if prices fall sharply, major consumers like China, the U.S., and India may boost strategic stockpiling, absorbing some of the surplus. Additionally, OPEC+ could adjust its policy if prices drop too low, serving as a potential counterbalance to the oversupply in 2026.

OPEC+ remains the pivotal force balancing the market in 2026. In April 2025, the group announced plans to unwind voluntary cuts, initially targeting the return of 2.2 million barrels per day. However, by May to September, it had accelerated and completed a cumulative 2.326 million barrels per day of increases. In October, the group initiated a second phase of output restoration, aiming to bring back 1.65 million barrels per day, with monthly increases of 137,000 barrels in October, November, and December. While production increases pause in the first quarter of 2026, the sheer scale of planned increases has fueled bearish sentiment over a severe glut. Reviewing OPEC+ meetings throughout 2025 reveals shifting messaging on the restoration schedule. After the March meeting, the group planned to begin monthly restorations from April 2025 through September 2026. In practice, including the UAE's necessary 300,000 barrels per day increase, the group effectively met its joint restoration target by September 2025, well ahead of schedule. Comparing planned versus actual output, adjustments have consistently been faster than initially outlined, with the April-September plan executed 1.644 million barrels per day ahead of the original timeline, catching the market off guard. With the global surplus at historical highs, OPEC+ wisely decided to slow the second phase of restorations (1.65 million barrels per day) and hit pause in the first quarter of 2026. Notably, actual production (excluding Iran, Venezuela, Libya, and Mexico) has not followed a linear path; June and September saw increases far exceeding plans. At its latest meeting on November 30, the 40th OPEC and non-OPEC Ministerial Meeting, eight countries voluntarily adjusting output reaffirmed the decision to suspend production increases for January, February, and March 2026 due to seasonal factors. They stated they might partially or fully restore the 1.65 million barrels per day based on evolving market conditions, proceeding gradually while maintaining flexibility to pause or reverse measures. The pace of restoring the remaining 1.238 million barrels per day will be a critical variable shaping market direction in 2026.

Non-OPEC+ producers continue to hold significant growth potential. In 2025, non-OPEC+ output averaged 54.601 million barrels per day, up 1.263 million barrels, or 2.37%, driven by growth in Brazil and the U.S. Beyond these established producers, the global supply landscape is shifting. Since October, OPEC+'s second-round restoration of 1.65 million barrels per day has intensified the surplus narrative. U.S. shale and OPEC+ have long vied for dominance, but the balance has been tipped by rapid output gains from Guyana, Brazil, Norway, and Argentina since 2019. According to Rystad Energy's November 9 report, these four countries will lead non-OPEC+ production growth through 2030, reshaping the global energy map. In 2026, non-OPEC countries are expected to add roughly 1.3 million barrels per day, with Guyana (+361,500 bpd), Brazil (+585,200 bpd), Argentina (+118,500 bpd), and Norway (+82,600 bpd) as primary contributors, totaling ~1.148 million barrels per day. Over the past five years, these nations have added ~1.9352 million barrels per day combined, with Brazil and Guyana leading. Guyana's surge stems from its deepwater fields; in October, production hit 840,600 barrels per day and continues to climb. The Stabroek block, operated by ExxonMobil (45%), Chevron (30%), and CNOOC (25%), has driven efficient deepwater development. With the Yellowtail field starting up in August, Guyana's output approaches 900,000 barrels per day. By end-2027, the Uaru and Whiptail projects could push production to ~1.3 million barrels per day. Brazil's output reached 3.3553 million barrels per day in 2024, fueled by its pre-salt ultra-deepwater fields, among the most significant oil discoveries of the 21st century, with lifting costs of just $3-8 per barrel. These long-cycle projects offer high predictability; once operational, they are difficult to halt due to high restart costs tied to FPSO systems, making continued production more economical even at lower prices. With low costs and diplomatic flexibility, Brazil is not bound by OPEC cuts and can benefit from them. Rystad estimates Brazil's average output will rise to 4.35 million barrels per day in 2026, an annual increase of 585,200 barrels. Argentina is also emerging as a key growth driver, transitioning from a "global breadbasket" to a potential "next Permian," with the world's second-largest shale gas and fourth-largest shale oil reserves. Its output growth is anchored in the Vaca Muerta shale basin; Rystad's November report raised Argentina's 2026 forecast to 917,000 barrels per day, implying an ~118,500 bpd increase. Norway, supported by government policies like generous exploration loss refunds and regular licensing rounds, has seen record exploration success, with output rising from 1.408 million barrels per day in 2019 to 1.859 million in 2025, a 4.74% CAGR. With the Carmen field ramping up, Norway is expected to add another 82,600 barrels per day in 2026. Combined, these four producers will add ~1.148 million barrels per day in 2026, further loosening an already ample market.

In the U.S., low prices have had limited impact on shale output. The weaker price environment is expected to temper new well drilling, and low prices did trigger several notable drops in the rig count during 2025. Yet U.S. crude production showed resilience, largely maintaining its level. The ongoing "shale revolution" has sustained output growth, with technological advances like multi-well pad drilling, horizontal wells, and hydraulic fracturing, alongside expanding pipeline infrastructure, lowering costs while boosting volumes. While the number of conventional rigs has declined, overall production capacity continues to grow. The more direct metric is the impact of prices on marginal costs. The EIA divides U.S. shale into five main regions: Permian, Bakken, Eagle Ford, Appalachia, and Haynesville. From January to October, the Permian accounted for 58.08% of output, with Eagle Ford and Bakken at 10.25% and 10.63%, respectively; the top three combined for ~78.96%. Using data from the Dallas Fed and Incorrys Energy, we can assess new-well economics: the Permian (Delaware and Midland) has operating costs of $33-35 per barrel, while other Permian areas run around $45; Eagle Ford is lowest at ~$26. For full-cycle costs, Incorrys data shows the Permian Central region holds 3,300 million barrels of resources at $50/bbl, rising to 3,550 million at $60; Delaware holds 28,500 million at $50 and 29,500 million at $60; Midland holds 20,500 million at $50 and 24,000 million at $60. Across the Permian, 76.99% of reserves have full-cycle costs below $50, 6.82% between $50-60, and 16.19% above $60. The weighted average full-cycle cost is $55.88 per barrel. In Eagle Ford, 120 billion barrels are extractable below $50, and 170 billion below $60. In the Williston region, 75 billion barrels are below $50 and ~100 billion below $60. Our historical analysis suggests WTI prices below $40 begin to materially affect production, while prices below $60 have a lagged impact on drilling activity. With WTI currently near $60, immediate production impacts are unlikely, but sustained prices in the $40-60 range could dampen medium-term supply growth. Thus, U.S. shale output is expected to remain at or above 13.8 million barrels per day in the near term, with supply-side pressure persisting.

Demand Side Dynamics

Chinese demand showed no major亮点 in either processing volumes or utilization rates. In the second quarter, refinery maintenance was more extensive than usual, boosting third-quarter throughput, while fourth-quarter turnarounds and sanctions on "dark fleet" crude imports weighed on runs, keeping processing on a seasonal track. From January to November 2025, Chinese state-owned and independent refiners processed 680 million tonnes, up 0.07% year-on-year, essentially flat. State-owned refinery utilization held steady at 70-80%, while independent teapot refineries ran at 55-60%, with more pronounced seasonal declines due to weak end-user consumption, poor refining margins, and external disruptions from tighter U.S./EU sanctions on illicit crude transport and domestic terminals. Product demand diverged: gasoline and diesel weakened while jet fuel grew, as new energy vehicles (NEVs) and LNG trucks eroded traditional fuel consumption. Gasoline apparent demand fell 5.1% year-on-year to 130 million tonnes over January-October, as NEV sales surged 32% to 12.91 million units, pushing penetration above 50%, displacing gasoline use. Diesel demand slipped 4.3% to 170 million tonnes, pressured by a weak manufacturing PMI (below 50 for most of the year) and LNG truck sales surpassing 150,000 units, up 12%, eroding diesel share. Jet fuel demand, however, rose 5.4% to 35.55 million tonnes, supported by strong holiday travel and robust export demand, making it a key growth pillar. Naphtha continued to lead growth, with output up 4% to 156 million tonnes over January-October, reflecting the "reducing oil, increasing chemicals" trend. China's large-scale integrated refining projects, such as Zhejiang Petrochemical, Hengli Petrochemical, and Shenghong Petrochemical, have expanded naphtha consumption, with apparent demand up 3.7% to 79.69 million tonnes. Naphtha's share of product consumption has risen above 15%, signaling a shift from fuel-centric to chemical-oriented consumption. In terms of inventories and trade, geopolitical tensions and sanctions drove record stockpiling. Crude imports reached 471 million tonnes over January-October, up 3.05%, with a shift toward Asia-Pacific, South America, and Africa, while U.S. imports plunged 73% amid tariff disputes, falling below 0.5% of the total. Onshore inventories hit historic highs, with Kpler data showing stock levels peaking in October with utilization at 64%. Sanctions on Chinese terminals left vessels carrying Iranian and Russian crude waiting offshore to discharge. For 2026, China issued an initial crude import quota of 7.73 million tonnes for the first batch, up 28% year-on-year, providing a window for further imports. Product export quotas for 2025 totaled 40.195 million tonnes across three batches, with jet fuel taking the lion's share. Weak overseas margins curbed gasoline and diesel exports, pushing more volumes domestically and worsening the surplus, while jet fuel exports rose significantly as refiners maximized quota usage.

U.S. refinery runs remained robust, with utilization fluctuating seasonally between 85-95%, peaking at 96.9% in early August during the summer driving season. Through November 14, average throughput was 16.23 million barrels per day, up 0.7% year-on-year. Product demand was steady: gasoline averaged 8.78 million bpd (+0.9%), diesel 3.80 million (+0.2%), and jet fuel 1.71 million (+3.6%), with jet fuel providing the growth momentum. Commercial crude inventories averaged 430 million barrels, down 10 million from last year and below historical norms. Diesel stocks fell 5.9% to an average of 120 million barrels, particularly in the third quarter, due to strong exports to Europe amid sanctions and tighter heavy feedstock supplies. Crude exports averaged 3.871 million bpd, down 5.4%, while net imports fell 10% to 2.218 million bpd, as the U.S. deliberately moderated surplus pressures. Refined product exports were largely flat at 2.341 million bpd.

India, the world's third-largest oil consumer, saw stable demand growth. Refinery throughput reached 200 million tonnes over January-September, up 2%, with imports of 190 million tonnes, also up 2%. With GDP growth of 7.8% in the April-June quarter—the fastest in five quarters—energy demand strengthened. Over January-October, gasoline demand averaged 3.484 million tonnes/month (+6.5%), diesel 7.646 million (+2.3%), and jet fuel 751,000 (+3.0%). As a net product exporter, India faced headwinds in crude imports, with over 80% coming from the Middle East and Russia. Since August, tighter U.S./EU sanctions on Russian oil and Trump's threat of a 50% tariff have made refiners like Reliance Industries cautious about Russian imports, shifting toward Middle Eastern barrels. Product exports were robust: gasoline exports rose 34% to 14.43 million tonnes, and diesel rose 10% to 24.47 million tonnes over January-October. A significant share went to Europe, with August diesel exports to the region spiking 137% year-on-year to a record, driven by the EU's upcoming tighter restrictions on Russian fuel trade set for January 2026, plus pre-winter stockpiling and maintenance schedules.

European refinery runs lagged, with throughput of 273 million tonnes over January-July, down 3.2% year-on-year, reflecting a sluggish economy and increased maintenance. Product demand improved modestly, with total consumption of 195 million tonnes, up 1%, led by Germany's infrastructure spending. Inventories built counter-seasonally in the second half, driven by the EU's 18th sanctions package set to fully restrict Russian fuel imports in January 2026, tightening diesel supplies and lifting crack spreads. Observers expect that as long as crack spreads remain attractive, refiners will keep diesel production high, but if inventories outpace demand, the tightness could ease, pulling spreads lower.

Tanker Market Outlook

In the tanker market, VLCCs have been a key support. As of November 26, 2025, the benchmark TD3C Middle East-China route earned an average of $52,625 per day, up 51% from last year's $34,900, with strength concentrated in the second half. Drivers include weak oil prices, sanctions on illicit trade, OPEC+ supply management, and U.S.-Iran talks. While sentiment played a role, supply-side dynamics underpinned VLCC rate gains. Looking to 2026, institutions forecast that tanker demand growth will trail fleet supply growth, casting doubt on whether rates can repeat this year's performance. The potential resumption of Red Sea transits could also pressure ton-mile demand if shipping normalizes. OPEC+'s first-quarter production pause adds uncertainty to the balance, with geopolitical risks, U.S.-Iran negotiations, and sanctions affecting trade flows. Rate movements are expected to remain seasonal, with Q1 and Q4 as windows of strength, but the extent of gains hinges on supply elasticity. With sanctions risks still present, compliant vessel availability remains limited, giving carriers pricing power, particularly on Atlantic-to-Asia routes. However, new vessel deliveries and moderating inventory builds could temper upward momentum, suggesting a neutral-to-cautiously optimistic outlook for 2026.

SHFE Crude Oil Futures (SC)

In 2025, the Shanghai crude oil futures (SC) market displayed high volatility, strong regional correlation, and accelerated internationalization. Prices followed a trajectory of early-year gains, mid-year declines, and second-half pressure, trading in a broad range of 430-640 yuan per barrel for the main contract. The first quarter saw gains on OPEC+ discipline, Middle East tensions, and winter demand, peaking at 639.5 yuan/bbl on January 16. April to May brought sharp losses, with U.S. "reciprocal tariffs" and OPEC+'s output increases pushing prices down 30.6% to 443.7 yuan/bbl by April 10. The second half was choppy: a June 23 spike of 6.9% on Israel's strike on Iranian nuclear facilities quickly faded after a U.S.-Iran ceasefire. Persistent OPEC+ increases and slowing global growth weighed on prices, with the main contract hitting a year-low of 430.5 yuan/bbl on October 17. Market structure improved, with overseas participation rising to cover clients from 36 countries and regions across six continents. The delivery system expanded, with 10 designated warehouses and 19 storage points by end-2024, totaling 19.19 million cubic meters of capacity, and further optimizations in 2025. In February, SHFE crude inventories stood at 9.541 million barrels, with Middle Eastern grades comprising 97.64%, underscoring the contract's Middle East focus. SC prices closely track Dubai crude, as seen in September when geopolitical risks and sanctions lifted prices, with the 2510 contract rising 6.2 to 489.8 yuan/bbl. The contract continues to serve as an effective hedging and pricing tool for Asian refiners, with delivery capabilities comparable to Cushing, and a network that supports trade across the region. As a key benchmark for the world's largest crude importer, SC's role in reflecting Asian supply-demand fundamentals is increasingly solidified.

Global Macro Backdrop

The IMF's October *World Economic Outlook* projected global growth slowing from 3.3% in 2024 to 3.2% in 2025 and 3.1% in 2026. Advanced economies are expected to grow ~1.5%, while emerging markets and developing economies manage just over 4%. The U.S. is forecast at 2% and 2.1% for 2025 and 2026, respectively, slightly upgraded. China's growth is seen at 4.8% for 2025 and 4.2% for 2026, underscoring its resilience. The WTO's October update noted strong global merchandise trade growth of 4.9% year-on-year in the first half of 2025, driven by front-loading ahead of tariff hikes, favorable macro conditions, and AI-related demand. The full-year growth forecast was revised up to 2.4%, though 2026 was cut sharply to 0.5%, suggesting the full impact of tariffs has been deferred. Global inflation is expected to moderate, though the U.S. faces above-target inflation with upside risks, while others see milder trends. Downside risks to the global economy include tariff shocks, elevated policy uncertainty, rising protectionism, geopolitical tensions, and fiscal vulnerabilities.

2026 Outlook: A Year of Peak Surplus Easing

For 2025, OPEC held the most bullish demand outlook at ~1.3 million bpd growth, while the IEA and EIA saw ~800,000 bpd. This was slightly below initial forecasts of 1.0-1.5 million bpd. Consensus for 2026 demand growth remains near 1.0 million bpd. With Chinese demand plateauing, the market is transitioning to lower growth, offering limited upside price support. The supply side remains the key variable. 2025 saw a rare confluence of OPEC+'s accelerated increases and robust non-OPEC+ supply, pressuring prices. For 2026, Q1 is expected to be the peak surplus period, with oversupply easing gradually through Q2 and Q3, and diminishing further in the second half. Following the November 30 ministerial meeting, eight OPEC+ countries—Saudi Arabia, Russia, Iraq, UAE, Kuwait, Kazakhstan, Algeria, and Oman—reaffirmed their pause on production increases for Q1 2026 due to seasonal factors. They maintain flexibility to restore the 1.65 million bpd gradually or pause/reverse as conditions warrant. If they proceed, OPEC+ could add up to 510,000 bpd in 2026, with average annual output potentially exceeding 2025 by over 2 million bpd. Rystad Energy estimates non-OPEC+ producers, led by Brazil, the U.S., Canada, and Norway, will add ~1.15 million bpd in 2026, reinforcing institutions' projections of a >2 million bpd surplus for the year. Geopolitical disruptions and sanctions remain wildcards, as 2025 demonstrated. Lower prices could affect both supply and demand: sub-$60 WTI has historically triggered U.S. rig declines, while cheaper oil enhances its competitiveness and may spur strategic stockpiling by major consumers, potentially easing the physical surplus. In summary, oversupply in 2026 remains a near-certainty, but with prices down for four consecutive years and entering lower ranges, crude may exhibit more resilience than in 2025. Supply-demand dynamics suggest a high probability of prices testing the multi-year bear-market bottom in the first half, with a recovery in the second half. In the base case, Brent is expected to trade in a $55-75 range for the year, with SHFE SC between 390-550 yuan/bbl. The annual average is likely to be $5-10 below 2025 levels, but after navigating the peak surplus period, 2026 is likely to represent the foundational bottoming year for oil prices.