By Giulia Petroni

Oil prices have been caught between conflicting forces since the start of the year amid growing uncertainty over U.S. policies, the Organization of the Petroleum Exporting Countries and its allies' looming output decision and geopolitical developments. David Fyfe, chief economist at Argus Media, talked to The Wall Street Journal about current oil-market dynamics and price direction. The following has been edited for length and clarity.

Q: How are market fundamentals looking?

A: We've got a very choppy market at the moment and it's not all entirely being driven by shifts in fundamentals. The fundamental picture for crude is relatively well balanced. Inventories are still pretty low in the OECD. But at the moment, I would say each and every announcement coming out of the White House in terms of either sanctions or trade tariffs is having just as much impact as market fundamentals.

Q: What are your expectations for OPEC+?

A: Announcements by OPEC+ members have been relatively muted ahead of an early March decision. If they do begin unwinding the production cuts, there's a risk that we get a little bit of a surplus, but it's well less than a million barrels per day. The big question is, do they unwind production cuts only to find by November/December that they're staring down the barrel of a major surplus, and by that I mean significantly above 1 million barrels per day? They may well nudge production a little bit higher, at least for a few months. But will they carry on all through 2025? There's no way they can unwind that much production without creating a significant surplus in the market.

On the other hand, there's some sort of brightness on the horizon for them if President Trump decides to hit Iranian crude exports hard. The Saudis, the Kuwaitis, the Emiratis have lost market share in China to Iranian barrels. So even if we only lost 400,000-500,000 barrels per day as a result of tighter sanctions, that is a gap in the Chinese market. If Chinese demand remains resilient, then some of the other Middle Eastern producers could backfill for that lost Iranian supply.

The other thing is, if we do see a peace deal in Ukraine, we could have some of the Russian oil that has been going to India and China possibly coming back into the Atlantic basin. And again that leaves a little gap for the Saudis, the Emiratis and the Kuwaitis to reclaim some market share in Asia.

Q: What's your view on Trump's decision to revoke Chevron's license in Venezuela?

A: There are 200,000 to 300,000 barrels per day that have been going primarily to U.S. Gulf Coast refiners. They like Venezuelan crude because it's heavy and sour and they're well configured to take that. The volume itself probably isn't that problematic. But this is why we have to look at the totality of Trump's proposed policies. If he's going to sanction Venezuelan supplies, that's heavy sour crude. If he's going to slap tariffs on Mexico and Canada, that's primarily heavy sour crude. My take is he can't do all of those things at once, because he would be putting U.S. refiners at a bit of a disadvantage.

The market fears trade tariffs could hurt the global economy and therefore oil demand.

My assumption is they will end up deploying heavily targeted tariffs on areas where they think the U.S. is capable of supplying alternatives. Nonetheless, even at more limited levels, tariffs are likely to be inflationary. It's something that will weigh on the Federal Reserve's decision making over the next 12 months at least. And it's another reason why we suspect monetary policy in the U.S. is going to remain restrictive pretty much all the way through 2025. Higher interest rates and a strong dollar are going to be disadvantageous for U.S. exporters. But probably more importantly, emerging markets that are paying for those commodities in dollars. That's a headwind for demand.

We have a demand-growth forecast globally this year of about 1.2-1.3 million barrels per day. Probably more toward the lower end of that range. But that hinges on two big provisos. The first is that Trump will be selective with tariffs. And the second one is that the Chinese government will deploy both fiscal and monetary stimulus to prevent an outright collapse of the property sector and a deflationary spiral.

Q: What's your forecast for oil?

A: Our forecast for Brent through 2025 is between $75 and $80. But the critical caveat to that is that OPEC looks ahead and says, if we carry on unwinding our production cuts as planned, that's going to create a surplus towards the tail end of this year and certainly in 2026. And therefore decides to choke off on those production increases. The second caveat is that the Chinese economy does not slip into a deflationary spiral. And the third one is that we get a sort of "Trump light" in terms of trade tariffs. The danger is that if those assumptions don't materialize, we could have a bearish market and a surplus, and therefore prices below $75.

Write to Giulia Petroni at giulia.petroni@wsj.com

(END) Dow Jones Newswires

February 28, 2025 07:40 ET (12:40 GMT)

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