Saudis Warn of More Supply Unless OPEC+ Cheats Fall in Line

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ENB Pub Note: When the United States or China need additional money, they just print more than what they need. That system is set up for failure, but when Russia, Iran, Iraq, and other OPEC+ members need extra cash, they drill more and throw the product on a dark fleet tanker to avoid sanctions. The global pricing matrices for oil and now for LNG have been around for a long time, and are changing due to the financial turmoil. Gas in a pipeline is easier to control, but this raises bigger questions about the global oil market.

The demand side of the equation is going to be tough to calculate this year. We are in an uncertain time with the tariff war, and demand is slowing in China. India will not have a tariff war problem and will be picking up new trading and volumes with the United States. But will that be enough new demand to make up for the slowdown in the Chinese market? I’m not sure yet. 

• Oil Imports:
  • In 2024, China imported approximately 11.1 million barrels per day (b/d) of crude oil, down from a record high of 11.3 million b/d in 2023.
  • About 90% of these imports were seaborne, with the remaining 10% arriving overland, primarily from Russia via pipelines.
  • China’s import dependence is around 59% of its oil consumption, based on 2016 data, though this has likely increased with rising demand and stagnant domestic production.
• Daily Oil Demand:
  • China’s total oil consumption in 2023 was approximately 16.6 million b/d, increasing from 15.0 million b/d in 2022.
  • In 2024, consumption of petroleum and other liquid fuels was estimated at 16.3 million b/d, making China the second-largest oil consumer globally after the United States.
  • Demand growth is slowing, with transportation fuel demand (e.g., diesel and gasoline) peaking due to economic challenges and a shift to electric vehicles (EVs). Petrochemical feedstocks like LPG and naphtha are driving residual growth.

• Oil Imports:
  • In 2023, India imported approximately 4.6 million b/d of crude oil, a 36% increase over the past decade.
  • Projections for the fiscal year ending March 2025 suggest imports could reach a record high of around 5.0 million b/d, driven by rising domestic fuel demand.
  • India’s import dependence is extremely high, at 87.8% in the 2023/2024 fiscal year, expected to hit an all-time high in 2024/2025. In 2016, it was reported at 96% of consumption.
  • Key suppliers include Russia (overtaking China as the top buyer in July 2024), Saudi Arabia, and Iraq, with Russian oil accounting for nearly 20% of imports in 2023.
• Daily Oil Demand:
  • India’s oil consumption in 2023 was approximately 5.4 million b/d, up from 5.2 million b/d in 2022.
  • In 2016, consumption was reported at 4.4 million b/d, indicating steady growth.
  • India is the third-largest oil consumer globally, accounting for about 4.6% of world consumption in 2023. Demand is driven by transportation fuels (e.g., diesel, gasoline), industrial growth, and petrochemicals, with jet-kerosene and LPG also growing.
  • Forecasts suggest India’s demand will rise to 5.8 million b/d by 2030 and potentially 7.4 million b/d by 2033.

• China: Demand growth is decelerating due to economic slowdown and EV adoption, with crude imports likely peaking soon (possibly 2025). Petrochemical demand remains a key driver.
• India: Rapid economic growth, urbanization, and low per capita oil use fuel demand, with India overtaking China as the largest source of global oil demand growth in 2024. Imports are rising to meet refining and domestic needs.
  

From Bloomberg:

OPEC+ leader Saudi Arabia warned the group’s overproducing members it could amplify a historic shift in policy and deliver further production increases unless they fall in line, delegates said.

Riyadh steered the Organization of the Petroleum Exporting Countries on Saturday to agree on a surge of 411,000 barrels a day in June, the second month in a row, in a bid to punish quota cheats like Kazakhstan and Iraq.

The kingdom is weighing returning the remainder of the group’s halted 2.2 million barrels in similar increments unless the countries fall in line, according to the delegates, who asked not to be identified as the talks are private. The Saudi threat was reported earlier by Reuters.

The threat suggests the kingdom is prepared to go even further in its sharp break with years of policy aimed at supporting prices as it tries to instill better discipline within the cartel. Coinciding with President Donald Trump’s trade war, the supply hikes are taking a brutal toll on oil prices, which have sunk to a four-year low near $60 a barrel in London.

OPEC+ had originally planned to revive 2.2 million barrels a day of halted production in modest monthly slivers through to late 2026.

Instead, it has approved the return of almost half that amount in just a few months, and now appears to be considering restarting the remainder at an equally brisk clip.

The Bottom Line:

We are seeing the beginning of the end of the tariff wars, and China will negotiate, but how far will they help their soon-to-be competitor, as we are on a path to decouple the Chinese manufacturing machine from the United States? Will the EU pick up that extra slack as it has industrialized and needs to beef up its military spending? They will need to import more from China.

Russia has moved its trading bloc away from the EU and does not need them, while successfully increasing its GDP by over 4.2%. Countries in the EU, like Germany, have had negative GDP growth for two years.

Watch the new trading blocs as they start to form, and India will be one of the most critical countries on the planet for economic growth and trading.

On a personal side, investing in the United States energy sector is about the safest place to put your money to work.

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