Publication date:
September 6, 2024
Oil Prices Set to Decline Further as OPEC+ Struggles to Balance Market
OPEC+ production cuts may not be enough to prevent an oil surplus in 2025, with prices potentially falling towards $60 per barrel.
Fossil Fuels
The global oil market is facing significant challenges as OPEC+ struggles to maintain price stability amid growing supply and weakening demand. Despite the group's recent decision to delay plans for restoring output by two months, analysts predict that a surplus will still emerge in 2025.
According to the International Energy Agency (IEA), global oil consumption growth is expected to slow to less than 1 million barrels per day next year, representing a mere 1% increase. This muted demand growth is largely attributed to the post-pandemic economic slowdown and the accelerating transition to electric vehicles.
China, traditionally the engine of oil demand growth, is showing signs of reduced appetite for the commodity. Imports have fallen to their lowest levels in almost two years, reflecting cooling economic growth and a potential shift away from fossil fuels.
Meanwhile, non-OPEC+ production is set to outpace demand growth by more than 50%, with the United States accounting for 40% of the increase. This surge in supply, coupled with weak demand, is expected to lead to a significant build-up in global oil inventories, starting with an accumulation of 1.3 million barrels per day in the first quarter of 2025.
The outlook for OPEC+ appears increasingly challenging. Even if the group continues to constrain production throughout 2025, it may not be enough to prevent a surplus. This situation puts pressure on member countries, particularly Saudi Arabia, which requires oil prices close to $100 per barrel to fund its economic transformation plans.
Major financial institutions, including Citigroup and JPMorgan Chase, predict that oil prices could slump toward $60 a barrel. This decline offers some relief to consumers and central banks after years of high inflation but poses significant challenges for oil-producing nations.
The OPEC+ coalition now faces a difficult balancing act. Further production cuts could help support prices but may also encourage more non-OPEC production and accelerate the transition to alternative energy sources. Some analysts even suggest that the group might consider a more extreme strategy of ramping up production to regain market share and pressure competitors like U.S. shale producers.
As the global energy landscape continues to evolve, the ability of OPEC+ to influence oil prices and maintain market balance is increasingly being tested. The coming years will likely see significant shifts in global oil market dynamics, with far-reaching implications for producers, consumers, and the broader global economy.
According to the International Energy Agency (IEA), global oil consumption growth is expected to slow to less than 1 million barrels per day next year, representing a mere 1% increase. This muted demand growth is largely attributed to the post-pandemic economic slowdown and the accelerating transition to electric vehicles.
China, traditionally the engine of oil demand growth, is showing signs of reduced appetite for the commodity. Imports have fallen to their lowest levels in almost two years, reflecting cooling economic growth and a potential shift away from fossil fuels.
Meanwhile, non-OPEC+ production is set to outpace demand growth by more than 50%, with the United States accounting for 40% of the increase. This surge in supply, coupled with weak demand, is expected to lead to a significant build-up in global oil inventories, starting with an accumulation of 1.3 million barrels per day in the first quarter of 2025.
The outlook for OPEC+ appears increasingly challenging. Even if the group continues to constrain production throughout 2025, it may not be enough to prevent a surplus. This situation puts pressure on member countries, particularly Saudi Arabia, which requires oil prices close to $100 per barrel to fund its economic transformation plans.
Major financial institutions, including Citigroup and JPMorgan Chase, predict that oil prices could slump toward $60 a barrel. This decline offers some relief to consumers and central banks after years of high inflation but poses significant challenges for oil-producing nations.
The OPEC+ coalition now faces a difficult balancing act. Further production cuts could help support prices but may also encourage more non-OPEC production and accelerate the transition to alternative energy sources. Some analysts even suggest that the group might consider a more extreme strategy of ramping up production to regain market share and pressure competitors like U.S. shale producers.
As the global energy landscape continues to evolve, the ability of OPEC+ to influence oil prices and maintain market balance is increasingly being tested. The coming years will likely see significant shifts in global oil market dynamics, with far-reaching implications for producers, consumers, and the broader global economy.
