Broker: London Stock Exchange Group plc (LSEG)
Date of Report: May 21, 2025

Global Commodities in Focus: Rising Oil Inventories, OPEC+ Strategies, Battery Metal Shifts, and LNG Expansion

US Oil Market Surprises: Inventory Builds Amid Weak Demand

The latest energy market data reveals unexpected increases in US crude and fuel inventories, driven by a surge in crude imports and a softening in product demand. Crude inventories climbed by 1.3 million barrels to reach 443.2 million barrels for the week ending May 16, defying analyst expectations of a 1.3 million-barrel draw. Notably, stockpiles at the Cushing, Oklahoma delivery hub dropped by 457,000 barrels, even as US net crude imports hit a six-week high at 2.58 million barrels per day, marking a third consecutive weekly rise.

Gasoline stocks also rose by 816,000 barrels to 225.5 million barrels, counter to consensus forecasts for a drawdown. Distillate inventories, which include diesel and heating oil, rose by 580,000 barrels, while expectations had been for a 1.4 million-barrel drop. The four-week average for distillate demand fell to its lowest since April 2024 at just 3.6 million bpd. Gasoline supplied — a key demand proxy — slipped to 8.6 million bpd from 8.8 million bpd the previous week, further pressuring futures prices.

Refinery runs increased by 89,000 barrels per day, and utilization rates edged up by 0.5 percentage points to 90.7%. Analysts expect demand for oil products to rebound in the coming weeks as the US driving season begins, potentially reversing the current inventory trends.

OPEC+ Strategy: Output Hikes and Renewed Pressure on US Shale

OPEC+ is ramping up oil output with dual aims: regaining lost market share from the US and disciplining overproducing member states. Saudi Arabia and Russia, the group’s leaders, are keen to challenge US shale producers, whose production costs have surged amid inflation and technological limits. US shale now requires an average oil price of \$65 per barrel to remain profitable, compared to Saudi Arabia’s \$3-\$5 and Russia’s \$10-\$20 per barrel.

The timing of OPEC+’s output increases coincides with a period when US producers face rising costs and falling income, exacerbated by global price declines and trade policy uncertainties. Industry insiders believe prices below \$60 per barrel could destabilize US shale operations, creating significant uncertainty and potentially forcing production cuts.

OPEC+’s share of global oil supply has dropped from over 40% a decade ago to under 25%, as US production rose from 14% to 20%. The group, together with its allies, now produces about 48% of global oil. The new strategy aims to reverse recent market share losses, even as it risks fiscal pain for oil-dependent nations. Russia needs oil above \$77 per barrel to balance its budget, while Saudi Arabia’s break-even is over \$90, yet both countries signal readiness for a period with prices near \$60 per barrel.

US Shale at a Crossroads: Cost Pressures and Rig Slowdown

US oil producers are feeling the impact of OPEC+’s renewed production push. The domestic oil and gas rig count has fallen to its lowest since January, with leading shale firms reducing output forecasts. Diamondback Energy lowered its 2025 outlook, citing global economic uncertainty and rising output from OPEC+. ConocoPhillips warned that a sustained price near \$50 per barrel could force widespread cutbacks, even among larger operators.

With the best acreage in the Permian Basin largely depleted, US producers are shifting to more expensive secondary areas. Inflation continues to pressure input costs, and analysts expect further industry consolidation if low prices persist.

Argentina’s Weather Relief: Impact on Soybean Harvest

Turning to agriculture, Argentina’s major soybean harvest is threatened by recent heavy rains, which have delayed fieldwork and increased crop disease risks. However, forecasts of dry weather should provide relief, allowing farmers to accelerate harvests and commence wheat planting for the next season. Argentina remains the world’s top exporter of soybean oil and meal, and the exchange continues to peg this year’s soybean output at 50 million metric tons, though late harvests could trigger downward revisions.

Brazil’s Bird Flu Outbreak: Short-Term Relief for Food Inflation?

Brazil, the world’s largest poultry exporter, is grappling with a bird flu outbreak that has triggered export bans from several countries. This is expected to temporarily increase domestic chicken supplies, potentially easing food inflation, which has been a political concern. However, the effect is likely to be short-lived, as producers may cut output if prices fall below costs. The risk of the disease spreading could ultimately lead to mass culling, impacting both chicken and egg availability and possibly driving inflation higher in the longer term.

Energy Storage Boom: LFP Batteries Reshape Metal Markets

The global push for energy storage is fueling a rapid shift to lithium iron phosphate (LFP) batteries, which are cheaper and eschew nickel and cobalt. Projects like Fidra Energy’s 1.45 GW Thorpe Marsh site in the UK are benefiting from falling LFP costs and improved performance, with plans to begin installation in 2025. The energy storage sector is now growing faster than electric vehicles, and UBS projects an eightfold increase in global storage capacity by 2030.

While electric vehicles still dominate battery demand, energy storage is projected to represent a fifth of the market by 2030. This shift is putting downward pressure on nickel and cobalt prices, which have fallen sharply due to oversupply and reduced intensity of usage in batteries. In contrast, lithium demand is expected to rise, though oversupplied markets have kept prices subdued so far.

South Korea’s LG Energy Solution and Norway’s Morrow Batteries are shifting production toward LFPs to capitalize on these trends. However, the US remains heavily reliant on Chinese imports, with 90% of its energy storage batteries sourced from China, raising concerns amid ongoing tariff battles.

Critical Minerals: Supply Chain Risks and Market Concentration

The surge in demand for critical minerals, driven by energy transition technologies, has led to higher market concentration in refining and processing. The top three suppliers are predicted to control 82% of refined material supply by 2035. China continues to dominate, expanding refining and battery recycling capacity, which increases global vulnerability to supply shocks from weather, technical failures, or trade disruptions.

Copper, nickel, and cobalt are expected to face lower supply diversification, while lithium, graphite, and rare earths may see easing concentration. The copper market, in particular, faces a potential 30% supply shortfall by 2035, due to declining ore grades, rising capital costs, and limited resource discoveries. While lithium demand will grow rapidly, the prospects for new project development are more favorable than for copper.

LNG Projects Forge Ahead Amid Demand and Cost Concerns

The LNG sector remains robust, with producers betting on urbanization and data center growth to drive long-term demand. Asia-Pacific economies, data center proliferation, and the need for reliable baseload power are supporting new project development, even as the industry faces challenges from potential oversupply, rising costs, and trade uncertainties.

Major new LNG supply this year will predominantly come from North America, including Plaquemines LNG, Corpus Christi LNG Phase 3, and LNG Canada, which expects its first cargo in June. TotalEnergies is targeting a resumption of its \$20-billion Mozambique LNG project, while Woodside Energy is seeking to reduce capital expenditure and sell stakes in its Louisiana LNG project.

Industry leaders warn of possible price pressures if capacity expansion outpaces demand, especially in price-sensitive markets such as South and Southeast Asia, where coal remains a competitor. Competitive LNG pricing is deemed crucial to prevent long-term coal lock-in.

Europe’s Gas Markets Adjust to New Realities

Austria’s Central European Gas Hub has seen an increase in trading volumes, overcoming the cessation of Russian flows via Ukraine by redirecting supply through Germany and Italy. Spot gas and futures trading volumes have both grown year-on-year, underlining the resilience of the market and its role as a key regional hub. Inventories are also on the rise, supporting supply security, with positive summer-winter spreads indicating improved market stability.

Global Agriculture Trade: Soybean, Rapeseed, and Corn Flows

Algeria has issued a new tender to buy up to 80,000 metric tons of animal feed corn, expanding eligible origins beyond Argentina and Brazil. Meanwhile, the European Union’s soybean imports for the 2024/25 season are up 7% year-on-year, with rapeseed imports up 24% and soymeal up 25%. In contrast, palm oil imports have declined by 18%.

Key Takeaways for Investors and Market Watchers

• US oil and fuel inventories are rising despite expectations for drawdowns, reflecting weak demand and higher imports.
• OPEC+ is aggressively pursuing market share, targeting US shale producers who now face elevated costs and declining rig activity.
• Energy storage is rapidly outpacing EV demand, driving a shift to LFP batteries and altering global metal markets.
• Critical mineral supply chains are increasingly concentrated, raising supply shock risks and intensifying the need for diversification.
• LNG projects are expanding to meet future power demand, but cost pressures and the risk of oversupply loom.
• European gas markets are adapting to the end of Russian supply flows with increased trading activity and inventory refills.
• Global agricultural trade patterns are shifting, with notable increases in EU oilseed imports and changing tender terms in North Africa.

Investors and analysts should closely monitor trends in energy storage technology, critical minerals, and global LNG and agricultural trade for emerging risks and opportunities.