Oil Market Update – What Balances the Oil Market at $65/bbl?

The negative oil consumption impact of Trump’s tariff policies has shifted oil price expectations lower. In this context, a weakening of the market’s downside correction mechanisms will likely reinforce oil prices in a lower range in 2025. Firstly, the Trump administration is focussed on lower oil prices, so will buy SPR barrels at a much lower price than Biden’s average $76/bbl purchase price. Second, short-term OPEC policy will focus on rebalancing burden sharing, with another higher-than-scheduled production increase likely for June with Saudi Arabia unwilling to keep subsidi s ing over-producers wit h Kazakhstan et al unable or unwilling to enact compensation cuts. With OPEC supply ramping up into a deteriorating demand environment, a rationali s ation of non-OPEC supply growth must rebalance the market. However, with the majority of the 1.3mn b/d of non-OPEC supply growth we had previously expected long lead-time, conventional and effectively price insensitive, short-cycle production will need to hold most of the burden for rebalancing. The exact nature of tight oil rationalisation is uncertain with the upcoming pricing period likely to represent the first time the new shale operating model has been exposed to lower prices, but we take the recent Dallas and Kansas City Fed surveys to anchor our price sensitivity level for activity declines around $65/bbl Brent.