OPEC+ has delayed plans to ease production cuts from October to December by two months, aiming to stabilise falling crude oil prices.
With global markets remaining in deficit, oil prices are now close to $73/barrel, reflecting concerns over demand from China and the US.
But looking at the expected 2025 balance of supply and demand, OPEC+ may simply be kicking the can down a very uphill road.
The fact that oil trades low highlights a very weak market sentiment that increasingly carries the risk of Brent staying below $75/barrel.
With an increase in non-OPEC+ production of 1.5 million barrels/day this year, and slow economic growth in China, the US and Europe, the oil market is currently dismissing the risk associated with the conflicts in the Middle East and between Russia and Ukraine.
Oil traders are downbeat. Vitol, Trafigura and Gunvor are all signaling very well supplied markets. Trafigura even sees risk of $60/barrel “soon”.
Trafigura, one of world’s top oil traders, says OPEC+ is sending a “confused message” to the market. Its members are facing a dilemma when it comes to managing their goals with what the market needs.
Investors are bracing for a further deceleration in consumption growth, amid signs of a downturn in manufacturing across the US, Europe and China.
Demand rather than supply is leading this down cycle. Oil and other commodities are likely to keep sliding until the US economy gains momentum or Chinese demand picks up.
According to the IEA, global oil markets face a surplus of about 1 million barrels/day this quarter, because demand growth is more than satisfied by a tide of new production from the US, Guyana and Brazil. But the situation will reverse in 2025 and 2026.
But Bank of America too forecasts a surplus in 2025, lowering its average Brent price to $75/barrel, provided OPEC+ stays put the whole year. If OPEC+ moves to boost production, it sees Brent averaging $60/barrel.
JPMorgan agrees, saying that OPEC+ will be forced to delay indefinitely its output hike. Even so, it forecasts Brent to average $75/barrel in 2025, “with prices dipping into low-$60s by year-end”.
Goldman Sachs also turned cautious on oil due to higher OECD inventory levels. It reduced its 2025 Brent forecast to $77/barrel.
ExxonMobil still sees oil demand holding above 100 million barrels/day by 2050, but surprisingly it sees demand growth flattening and peaking this decade.
ExxonMobil also estimates that oil production naturally declines at a rate of about 15% per year. That’s nearly double the IEA’s prior estimates of about 8%, because of the increasing use of unconventional oil and natural gas.
At that rate, by 2030, without any new oil supplies, existing oil supplies would fall from 100 million barrels/day to less than 30 million barrels/day – massively short of what is needed to meet demand every day.
That means that the world still needs trillions of dollars of investment in upstream oil and gas.
There is a growing divergence among key oil demand forecasting bodies, reflecting a shift in “institutional pressures” that could bring unintentional bias. Some outlooks, such as from the IEA, are becoming less objective and more aspirational.
Shell plans wide cuts in its oil exploration division as part of a strategy to boost profitability. It plans to grow its LNG division, steady oil production and focus on its most profitable businesses.
In the case of geopolitical risks related to crude output and supply, more oil tankers are being hit by the Houthi rebels in the Red Sea.
Dr Charles Ellinas is Councilor at the Atlantic Council
X: @CharlesEllinas