For the second consecutive year, global crude flows have been disrupted by the ongoing conflicts in Ukraine and the Middle East, leading to rerouted tanker shipments and a division between suppliers and buyers. Exports of Middle Eastern oil to Europe have decreased, while more oil from the U.S. and South America is making its way to Europe. Additionally, Russian oil that used to go to Europe is now being sent to India and China.
These changes have become more evident as oil refineries in Europe have shut down due to ongoing attacks on shipping in the Red Sea. According to ship tracking data from Kpler, Middle Eastern crude exports to Europe plummeted by 22% in 2024.
Adi Imsirovic, an energy consultant and former oil trader, noted that these shifts in oil flows are leading to "opportunistic alliances," with closer ties forming between Russia and India, as well as China and Iran, which are reshaping the oil trade landscape.
Imsirovic also pointed out that oil is no longer flowing along the most cost-effective routes, resulting in tighter shipping availability, which drives up freight costs and ultimately impacts refining margins.
The U.S. has emerged as a key player in the global oil market, thanks to its booming shale production. The country is now exporting 4 million barrels per day, increasing its share of the global oil trade to 9.5%, trailing only Saudi Arabia and Russia.
Trade routes have also been affected by the launch of the massive Dangote oil refinery in Nigeria, the expansion of Canada's Trans Mountain pipeline to the west coast, declining oil production in Mexico, a temporary halt in Libyan oil exports, and rising output from Guyana.
Looking ahead to 2025, suppliers will continue to face challenges from decreasing fuel demand in major markets like China. Additionally, more countries are expected to shift towards using less oil and more gas, while the growth of renewable energy sources will persist.
"This kind of uncertainty and volatility is the new normal - 2019 was the last 'normal' year," said Erik Broekhuizen, a marine research and consulting manager at ship brokering firm Poten & Partners.
1. OIL MARKET UNCERTAINTY
Broekhuizen pointed out that shifts in oil demand predictions have disrupted the long-standing expectations for oil market growth.
"In the past, it was easy to assume there would be solid long-term demand growth, which helped ease many issues over time. Now, that assumption isn't as reliable," he noted, referencing the decline in demand from China and Europe.
Last year, China's oil imports dropped by about 3%, influenced by the rise of electric and plug-in hybrid vehicles and an increase in liquefied natural gas usage in heavy trucking. In Europe, reduced refining capacity and government initiatives to cut carbon emissions have led to a roughly 1% decrease in crude imports.
NEW SOURCES, NEW ROUTES
After Russia's invasion of Ukraine, European refiners initially reduced their Russian oil imports and turned to U.S. and Middle Eastern oil instead. However, recent attacks on ships in the Red Sea due to the conflict in Gaza have raised shipping costs from the Middle East. As a result, refiners have boosted imports from the U.S. and Guyana to record levels.
In 2024, Iraq's exports dropped by 82,000 barrels per day (bpd), while the United Arab Emirates saw a decline of 35,000 bpd. Meanwhile, Europe increased its imports by 162,000 bpd from Guyana and 60,000 bpd from the U.S.
The escalating conflict in the Middle East around late September, along with concerns about potential sanctions from U.S. President-elect Donald Trump, tightened supply and raised prices for Iranian oil. This situation led Chinese refiners to explore oil options from West Africa and Brazil.
NEW REFINERIES, NEW PIPELINES
Nigeria's new Dangote refinery has started using enough local supply to keep about 13% of Nigeria's crude exports within the country in 2024, a significant increase from just 2% in 2023, according to Kpler. This shift has reduced Nigeria's exports to Europe, and the country also imported 47,000 bpd of U.S. WTI, which is unusual for a major net exporter.
New refining facilities coming online in Bahrain, Oman, and Iraq, along with the Dos Bocas refinery in Mexico, are expected to absorb more oil production from those areas.
In Canada, the expanded Trans Mountain pipeline is now capable of transporting an additional 590,000 barrels per day to the Pacific Coast, pushing the country's waterborne exports to a record high of 550,000 barrels per day in 2024.
This has created a chain reaction: With more Canadian crude heading to the U.S. West Coast, local refineries have been purchasing less oil from Saudi Arabia and Latin America. Additionally, direct shipments from Canada to Asian markets have reduced the need for re-exports from the U.S. Gulf Coast.
China remains the biggest buyer of Canadian crude, but it's also being imported by countries like India, Japan, South Korea, and Brunei. Analysts suggest that more Asian refiners are likely to jump on board and buy this oil.
Analysts also pointed out that Trump's proposed 25% tariff on crude from Canada and Mexico, the top two foreign oil suppliers to the U.S., could potentially alter oil trade patterns in 2025.