U.S. President Donald Trump has kicked off his second term with a bang, launching a systemic and aggressive makeover of the American government.
Trump’s new administrative strategy closely mirrors what Steve Bannon, former chief White House strategist at the start of the first Trump administration, described as ‘flooding the zone’. Standard Chartered has pointed out that oil markets are showing signs of disorientation in the face of the sheer volume of new policy positions by the Trump administration. According to StanChart, many energy traders have responded to this chaos by reducing their risk exposure. StanChart says the disorientation is manifesting in unusually low levels of volatility.
And now analysts have predicted that the path of least resistance for oil prices is lower in the short-term. First off, market technicals have turned relatively bearish in the very short term. Second, most machine-learning or AI models have turned short-term bearish. For example, StanChart’s proprietary machine-learning model, SCORPIO, last week predicted the 24 February Brent settlement within $0.15 per barrel (bbl) of the actual closing price; the AI tool is now predicting a $1.65/bbl w/w fall for 3 March settlement.
Finally, the annual London International Energy (IE) Week round of research, consultant and trader events appears thus far to have accentuated the negative in terms of the oil market outlook. In previous years, the mood of the week has more often than not been self-reinforcing.
However, StanChart says the bearish sentiment creeping into oil markets is largely unwarranted. The markets are expecting large and imminent market surpluses driven by a flood of incremental non-OPEC+ supplies. Whereas the predicted large surpluses did not occur in H2-2024 or so far in Q1-2025, the belief in a sudden surge of non-OPEC+ supplies has not faded. These bearish expectations have persisted despite last year’s U.S. slowdown, the underperformance of Brazil relative to forecasts and ongoing tightness in the prompt crude oil market. Last month, Standard Chartered predicted that the dramatic slowdown in U.S. oil production growth that we witnessed in 2024 will continue over the next two years.
According to the experts, last year witnessed a sharp slowdown in non-OPEC+ supply growth from 2.46 mb/d in 2023 to 0.79 mb/d in 2024, primarily caused by a reduction in U.S. total liquids growth from 1.605 mb/d in 2023 to 734 kb/d in 2024. StanChart expects this trend to continue, with U.S. liquids growth expected to clock in at just 367 kb/d in 2025 before slowing down further to 151 kb/d in 2026.
Stanchart says the U.S. slowdown and a long tail of declines will keep non-OPEC supply growth well below 1 mb/d over the next couple of years despite some areas of solid growth in Brazil, Canada and Guyana. In other words, there’s no inevitable supply glut coming as many traders feared in 2024.
Natural Gas Prices Decline
U.S. natural gas futures fell toward $4.0/MMBtu, with forecasts for warmer weather and record production outweighing strong LNG exports and tight storage. Milder conditions are expected through March 12, cutting demand for natural gas for heating purposes. Meanwhile, February production remains near record levels, rebounding to 104.3 bcfd by February 25 from 100.5 bcfd on February 19, when frozen wells caused a temporary decline. U.S. LNG exports remain robust, averaging 15.6 bcfd in February, up from 14.6 bcfd in January, with a daily record of 16.4 bcfd driven by increased flows to Venture Global’s Plaquemines plant.
A similar scenario is playing out in Europe’s gas markets, with European natural gas futures declining to €41.44/MWh on Wednesday, the lowest since December 18, with warmer weather reducing the rate of draw in EU inventories over the past weekend. The draw on Sunday 23 February clocked in at 216 million cubic metres (mcm), the smallest draw on any day since 3 November and 460 mcm less than the previous Sunday. Despite the lower withdrawals, the fall in inventories over the past week as a whole remained well above normal: According to Gas Infrastructure Europe data, EU inventories stood at 47.69 billion cubic metres (bcm), a w/w fall of 4.08 bcm, which is 87% more than the five-year average. Based on weather forecasts, StanChart’s model implies end-March inventories of 40.3 bcm; this would necessitate a build of about 65 bcm in order to reach the EU Commission’s target of 90% full storage by 1 November.
By Alex Kimani for Oilprice.com
