Geopolitical tensions are poised to significantly impact the volatility of the global oil and gas sector, particularly as military escalations and international sanctions evolve. According to Fitch Ratings, these developments could disrupt supply chains, affecting both prices and production rates. Prognostications for global oil demand suggest it will continue growing through 2025, albeit at a slower pace than the explosive growth seen between 2022 and 2023.
Oil prices are expected to fall to approximately USD 70 per barrel by 2025, down from an average of USD 80 per barrel in 2024. This decrease is primarily attributed to moderated demand and increased production from non-OPEC+ countries, leading to anticipated oversupply conditions. Despite these risks, Fitch notes OPEC+’s capability to adjust supply levels has historically alleviated some price volatility. The group's recent decision to postpone production increases until April 2025, alongside the complete reversal of production cuts extended to the end of 2026, exemplifies this strategy.
Fitch Ratings emphasizes the importance of cash flow generation and cost discipline as key metrics supporting ratings across the Europe, Middle East, and Africa (EMEA) regions. It envisions stable credit metrics for major players as they navigate elevated capital expenditure requirements. Notably, oil and gas prices are becoming increasingly integral to cash flow stability against the backdrop of pressing challenges within refining and petrochemical sectors.
The report urges attention to the merging dynamics of the sector, affirming the energy transition will spur mergers and acquisitions (M&A) activity. Meanwhile, North American exploration and production (E&P) companies are revealed to be bottled up with limited production growth, primarily due to cautious investment strategies concentrated on liquids rather than gas. Capital expenditure has risen, yet drilling programs remain heavily skewed toward oil, as low natural gas prices deter aggressive strategies.
Geographical insights indicate forecasts of production increases from Chinese national oil companies (NOCs), which are expected to see low single-digit growth for crude oil and higher gas production through 2025. NOCs account for over 90% of China’s oil production and over 80% of its gas output, evidencing their dominance and the financial robustness to cover capital investments.
Turning to India's oil sector, companies' capital intensity is projected to remain high as they broaden refining, petrochemical, and retail capabilities, adapting to transitions within the energy economy. Across Southeast Asia, the demand for upstream investments primarily revolves around the maturity of existing assets, shifting resources to sustain production levels.
Moving to Latin America, overall oil and gas production is expected to rise within Fitch’s rated portfolio owing to expansionary moves from Brazil and Argentina. On the contrary, investments may wane in Mexico, focusing instead on refining capabilities as indicated by government strategies affecting PEMEX. The anticipated reduction of average lifting costs by 10% across the region is indicative of growing unconventional production and infrastructural development.
Meanwhile, the oil and gas lubricants sector is also set to expand significantly, predicted to grow from approximately USD 169.24 billion in 2023 to USD 203.94 billion by 2030, reflecting a compound annual growth rate (CAGR) of 2.7%. This market is instrumental for supporting operations throughout drilling, production, refining, and transportation, as lubricants are pivotal for minimizing machinery wear and maximizing efficiency.
Heightened global energy demands, particularly stemming from industrializing nations, are spurring the need for high-performance lubricants suitable for extreme operational conditions. Businesses are pivoting toward innovative, eco-friendly solutions as stringent sustainability regulations shape market trends. Notably, the focus on synthetic oils and biodegradable options is indicative of this shift.
Notable developments include increased adoption of digital solutions like IoT and predictive analytics to maximize lubricant use efficiency, reduce waste, and cut operational costs. Nearly every market entity is engaged, leading manufacturers to collaborate with equipment manufacturers (OEMs) for customized lubricant solutions suited to specific machinery.
Regions such as Vietnam and Thailand are also witnessing remarkable growth facilitated by strategic mergers and government policies promoting sustainable lubricant production. The infusion of green initiatives and regulatory expectations continues to reframe the lubricant market, indicating promising opportunities for future investments.
With the US oil and gas lubricants market thriving principally due to its shale sector, companies such as Chevron and ExxonMobil are at the forefront, investing heavily to expedite the development of next-generation solutions. Europe is witnessing emergent trends focused on high-performance lubricants as regulations demand increased environmental compliance from major players.
Overall, as geopolitical tensions and investments evolve, the dual narratives of oil production and lubricants serve as pivotal touchpoints for industry stakeholders, shaping the future dynamics of the global oil and gas market.
