Oil's delicate dance

Welcome to the latest edition of Oil Titans, a newsletter for people interested in the oil industry — written by me, Noha Mahmoud. Please send your feedback to [email protected] or via Twitter: @nouha_mahmoud

My choices this week

1. US shale industry and Saudi Arabia push back against Trump’s “drill, baby drill.”
2. US tariffs pause on Mexico eases oil prices.
3. Iraq edged OPEC production lower in January.
4. Vitol projects global oil demand until 2040.

Clash looms between Trump and Saudi Arabia over “drill, baby drill”

US frackers and Saudi officials are resisting President Donald Trump’s push for increased oil production. Trump wants to boost drilling, arguing that lower prices will solve many of the country’s problems, but he is already facing early resistance from the oil market.

A former US official told the WSJ that a clash is coming between Trump and Saudi Arabia over oil prices.

For months, Trump has encouraged the US shale industry to “drill, baby, drill,” but another oil boom is not imminent, even with deregulation, according to oil executives.

After overproducing and driving many companies into bankruptcy during the shale boom’s heyday, the industry is now focused on keeping costs down and returning cash to investors.

Trump’s advisers privately acknowledge that US frackers will not significantly increase output, according to WSJ. They say his best chance to lower prices is by persuading OPEC and its de facto leader, Saudi Arabia, to pump more oil.

However, Saudi Arabia has privately signalled to former US officials that it is unwilling to increase global oil supplies, sources told WSJ. Some of those officials have shared the message with Trump’s team.

Trump believes a surge in oil production could:

1. Curb inflation and support interest-rate cuts.
2. Strengthen his position in coming confrontations with petrostates Russia and Iran.

In a January speech, Trump said he planned to ask Saudi Arabia and OPEC to lower oil prices. He is planning to visit the kingdom early in his second term and expected to push for higher Saudi production in person.

Trump’s focus on oil prices has unsettled parts of the industry. Although the oil is currently around $73 a barrel, far below its 2022 average of over $94, Trump has declared a national “energy emergency” and vowed to halve Americans’ energy costs. Gasoline prices, which once hit a record over $5 a gallon, are now averaging $3.10.?

Keith Kellogg, Trump’s special envoy to Ukraine and Russia, said global producers should push oil prices down to $45 a barrel, to pressure Russia into ending the war in Ukraine.?

Catch up quick: US shale drillers won’t significantly boost output despite Trump’s push, as they focus on profits over growth.

• His call for $45 oil could hurt both US frackers and Saudi Arabia, which needs $90 a barrel to balance its budget.
• Saudi Arabia priorities stable prices and its partnership with Russia, making it unlikely to flood the market with oil.
• Trump's push for tougher Iran sanctions could reduce global supply, ironically pushing prices higher—undermining his goal.

US tariffs pause on Mexico eases oil prices

Oil prices closed at a one-month low as US President Donald Trump paused tariffs on Mexico for a month, According to Reuters.

The decision came as Mexico agreed to reinforce its northern border to curb the flow of illegal drugs, particularly fentanyl.

Earlier in the session, concerns over Trump’s planned tariffs on Canada, Mexico and China had pushed oil prices by more than one dollar a barrel. The market reacted to potential disruption in crude imports from Canada and Mexico-two of the main suppliers to the US.

Together, Canada and Mexico supply a quarter of the crude used in US refineries.

Why it matters: Trump’s tariff threats have added uncertainty to oil markets, with potential inflationary consequences, supply disruptions and geopolitical tensions. Meanwhile, OPEC+ remains cautious, and long-term demand trends remain uncertain, keeping oil prices on edge.

• A trade war could slow global economic growth, dampening energy demand and fueling inflation concerns.

Iraq edged OPEC production lower in January

A Bloomberg survey shows that OPEC’s oil output dipped last month following a fire at Iraq’s biggest oil field.

?The group of petroleum exporting countries pumped an average of just over 27 million barrels a day in January. According to the survey, this was about 70,000 barrels a day less than in December.

?However, Iraq’s decline partially offset by increases from Venezuela and Kuwait.

?Iraq quickly extinguished the blaze that erupted at a storage tank at the Rumaila oil field on 24 January, but the incident temporarily knocked out about 300,000 barrels a day — or 25% of the field’s capacity — during the following week.

?The country’s production averaged just over four million barrels a day last month, in line with its OPEC quota.

?The big picture: OPEC+ is maintaining tight control over oil supply as it navigates a volatile market shaped by production setbacks, global demand concerns and geopolitical pressures.

1. ?The organisation, led by Saudi Arabia and Russia, is sticking to its supply-cut agreement despite external pressure, particularly from the US to lower oil prices.
2. While OPEC+ plans to gradually revive output from April, it has already postponed increases three times, fearing oversupply amid weak demand from China and rising production in the Americas.
3. Iraq’s production is now closer to its agreed limit, but it still faces pressure to compensate for past overproduction, a challenge shared by Kazakhstan and Russia.

What is the future of oil demand?

The world’s largest independent energy trader, Vitol, projects that global oil demand will remain near current levels through 2040, with little changed over the long term.

?In its long-term demand outlook released on Monday, the energy and commodities trader said rising consumption later this decade will be offset by a decline in the late 2030s.

?Vitol expects oil demand – estimated by the International Energy Agency at 104 million barrels per day this year - to rise to nearly 110 million bpd by the end of the 2020s.

?Zoom out: Global Oil Demand's Future is shaped by plastics, aviation and population growth.

• ?Vitol's outlook suggests that while oil demand may plateau in the 2030s, it will remain influenced by key sectors like plastics, aviation, and housing.
• ?Despite a decline in road transport fuels, global demand is expected to stay steady through 2040, with rising consumption in some industries offsetting broader trends in energy efficiency and climate change efforts.
• The overall trajectory, however, still faces potential disruptions, such as stalled adoption of electric vehicles, which could push oil demand higher.

That is all for this dispatch from Oil Titans. Thanks for reading! You can send your feedback by email: [email protected]. If you enjoy this newsletter please do share it with others.