As the global oil market enters 2025, experts are predicting a significant drop in oil prices, driven by the potential unwinding of output cuts by the OPEC+ alliance. The fear of falling prices is compounded by a sluggish post-COVID recovery, rising oil production from non-OPEC countries, and geopolitical tensions that could further destabilize the market.

Oil prices have already faced volatility in recent months, with global benchmark Brent crude hovering around $72 per barrel and U.S. West Texas Intermediate (WTI) futures at $68 per barrel. However, analysts are predicting that prices could fall drastically, potentially dropping to as low as $40 per barrel, should OPEC+ decide to abandon its current strategy of limiting production. According to Tom Kloza, global head of energy analysis at OPIS, such a scenario could result in a 40% decrease from current prices, resembling a market crash not seen since the global economic downturn caused by the COVID-19 pandemic.

OPEC+’s Strategy and Market Conditions

The Organization of the Petroleum Exporting Countries (OPEC), along with its allies (known as OPEC+), has been exercising caution by implementing voluntary output cuts to support prices. In September, OPEC+ postponed plans to begin scaling back the 2.2 million barrels per day (bpd) reduction by two months in order to address the falling price of crude. Despite these efforts, the oil cartel faces growing pressure as demand continues to be weak, particularly from China, the world’s second-largest economy and leading importer of crude.

OPEC has already lowered its global oil demand growth forecast for 2025, trimming its prediction from 1.6 million bpd to 1.5 million bpd. This shift highlights the uncertainty around global economic recovery and the sustainability of oil demand in the coming year. With oil prices being weighed down by a perceived market surplus, the situation is further exacerbated by increased production from non-OPEC countries such as the United States, Brazil, Canada, and Guyana, all of which are planning to boost supply in 2025.

Bearish Predictions for 2025 Oil Market

Many analysts are now predicting a bearish outlook for oil prices in 2025, particularly if OPEC+ continues with its planned output increases or decides to unwind its cuts altogether. Henning Gloystein, head of energy at Eurasia Group, warned that a complete removal of OPEC+ cuts would likely trigger a sharp decline in prices, possibly pushing them toward the $40 per barrel mark. Gloystein emphasized that with oil demand growth next year expected to remain modest, the potential for a market oversupply is significant.

The consensus in the market is that oil inventories are likely to build up substantially in 2025, as more oil is pumped into the market without sufficient demand to absorb it. Citibank’s energy strategist, Martoccia Francesco, noted that such a scenario could result in a market surplus of up to 1.6 million bpd, nearly doubling the current oversupply. Even if OPEC+ decides not to reverse its output cuts entirely, the future of oil prices remains bleak, with Citi analysts projecting that Brent crude could average as low as $60 per barrel in 2025.

Geopolitical Risks and Economic Uncertainty

Adding to the bearish outlook is the uncertainty surrounding U.S. politics and trade policies, particularly with the incoming administration of President-elect Donald Trump. Analysts are concerned that a potential trade war, especially with China, could further weigh on oil prices. OPIS’s Tom Kloza explained that if a trade conflict were to escalate, it could send oil prices into a downward spiral, as economic tensions often lead to reduced global demand for oil.

Trump has also expressed support for a “drill baby drill” policy, advocating for increased domestic oil production in the U.S. He has vowed to reduce energy prices significantly, which would require oil prices to fall well below $40 per barrel. This policy stance, if enacted, could lead to a further influx of supply, putting even more pressure on the market.

In the short term, U.S. gasoline prices are benefiting from the current price structure, with retail gasoline sitting at a comfortable $3 per gallon. This price point is seen as a “sweet spot” for consumers and producers alike, where consumers are not overly burdened by high fuel costs, and producers still see profitable margins. However, if oil prices were to fall drastically, it could drive retail gasoline prices down significantly, creating a potential political and economic backlash.

Future Outlook for the Oil Market

Despite the bearish forecasts, some analysts remain cautious about the possibility of a price war among OPEC+ members. While the alliance has shown a commitment to managing production cuts in recent years, a more gradual unwinding of cuts in early 2025 is considered more likely than an abrupt increase in output. Such an approach would avoid an immediate collapse in prices, although it would still lead to a market surplus and continued price weakness.

Looking ahead, the oil market will remain volatile, influenced by multiple factors including geopolitical tensions, shifts in global demand, and the actions of key players like OPEC+ and the U.S. While the risk of falling oil prices is high, the future remains uncertain, and much will depend on the decisions made by oil producers in the coming months. As global economic conditions evolve, the oil market could face a turbulent year ahead, with potential price swings that could affect everything from consumer fuel costs to broader economic stability.

(Adapted from CNBC.com)

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