Authored by Tsvetana Paraskova via OilPrice.com,

• China’s weak oil demand has already thrown OPEC+ off track in its supply-management policies.

• Trump's energy policies could create a new challenge for OPEC in 2025.

• Amidst further uncertainties about global oil supply and demand with President Trump, OPEC+ may have to tweak their production policy more often than they have intended.

The OPEC+ group has struggled to manage oil supply and prices this year.

First, there was overproduction from several members, undermining the cuts from the other producers in the pact.

Then came the summer and the first actual consumption data for the first and second quarters of the year, showing that China’s oil demand growth is nowhere near OPEC’s expectations.     

Toward the end of the year, just as the cartel and its allies announced they would postpone the start of the easing of the production cuts to January 2025, they now have the wildest card on the market of all—President-elect Donald Trump.

China’s weak oil demand has already thrown OPEC+ off track in its supply-management policies and continues to defy OPEC forecasts with underwhelming crude consumption and imports.

The group now has to contend with some policies President-elect Trump has promised to introduce, including easier permitting for fossil fuel projects, import tariffs, and a more rigid stance toward Iran.

China Weakness

China has already undermined the OPEC+ alliance’s policy. The group is cutting production, but demand has been weaker than expected amid slower Chinese economic growth, the property crisis undermining construction activities and diesel consumption, and the surge in electric vehicle (EV) sales and registrations of LNG-fueled trucks.

OPEC has been wrong-footed by the surge in electric mobility in China, the International Energy Agency (IEA) said in its World Energy Outlook 2024 report last month.

In October, OPEC cut its 2024 global oil demand forecast in the third consecutive monthly report, citing actual consumption data so far this year and expectations of slightly lower demand in some regions, including China.

In each report since August, OPEC has signaled that its estimates of Chinese oil demand growth were too optimistic when it published the first outlook for 2024 in July 2023.

Despite the optimistic long-term view, OPEC’s short-term demand outlook on China has been revised down, again.

Weaker-than-expected oil consumption in China and rising electric vehicle sales will continue to weigh on the world’s oil demand growth going forward, according to the IEA’s Executive Director, Fatih Birol.

“This year, global oil demand is very weak, much weaker than previous years, and we expect this will continue because of one word — China,” Birol told Bloomberg in an interview last month.

China’s official crude oil import data hasn’t been encouraging for OPEC, either. Although imports are not all the crude China consumes, the import trends in the world’s top crude importer have weighed on oil prices.

The latest Chinese data showed another month of lower crude oil imports compared to the same month of 2023.

In October, China imported 10.53 million bpd of crude oil, per data from the General Administration of Customs. This was the sixth consecutive month in which crude cargo arrivals have lagged behind the imports in the same months of 2023. And imports were 9% lower compared to October 2023 and 2% below the import level of 11.07 million bpd in September 2024.

Trump Uncertainties

Apart from China, OPEC+ will now have to navigate uncertainties and risks to oil demand and supply with the incoming American president.

President-elect Trump is expected to step up sanctions on Iran, an OPEC member exempted from the production cuts, which earlier this year saw its exports hitting a six-year high.

Lower Iranian supply could be bullish for oil prices if demand holds.

But other policies Trump has floated, such as 10% tariffs on all U.S. imports and a 60% tariff on imports from China, could undermine global economic growth, leading to lower global oil demand overall.

OPEC+ can ill-afford weak global oil demand growth if it wants to return 2.2 million bpd of supply to the market next year.

Tariffs could slow U.S. and global economic growth, reducing oil demand by as much as 500,000 bpd in 2025 – one-third of Wood Mackenzie’s current projection for global oil demand growth next year.

“This has the potential to soften oil prices by US$5 to US$7/bbl from current levels, assuming no other risks such as an escalation in Israel-Iran hostilities,” Simon Flowers, chairman and chief analyst at WoodMac wrote last week.

Despite the fact that the U.S. oil and gas industry got what it had wanted for four years – a president supportive of the sector – American production is unlikely to grow by much more than the current growth trajectory, analysts say.

That’s because the big public companies that dominate shale supply will continue to prefer returns to shareholders and capital discipline to “drill, baby, drill,” according to Wood Mackenzie and Rystad Energy.

Moreover, WoodMac's Flowers said tariffs would likely expose U.S. producers and services companies to cost inflation.

“While the incoming administration will hold a more favourable view towards the oil and gas industry, ultimately the potential for production growth is going to be largely dictated by price,” Warren Patterson, head of commodities strategy at ING, says.

Amidst further uncertainties about global oil supply and demand with President Trump, OPEC+ may have to tweak their production policy more often than they have intended.