The year 2025 is shaping up to be challenging for the Organization of the Petroleum Exporting Countries (OPEC). Analysts from DNB Markets have forecast significant difficulties for OPEC in maintaining oil prices and market balance due to several converging factors.
Analysts examine the key challenges that OPEC is expected to face, including potential oversupply, sluggish global demand, and the implications of its production strategy.
OPEC's troubles are primarily rooted in the expected market dynamics for 2025. “We expect the oil market to flip to moderate oversupply even if OPEC extends its existing production cuts,” analysts said.
Analysts point out that non-OPEC supply growth has been robust, reaching a record 3.2 million barrels per day (mb/d) year-over-year (YOY) in 2023, and while this growth is expected to slow down, it will still average 1.5 mb/d YOY in 2024 and 2025.
This sustained supply growth from non-OPEC sources, including the United States, Brazil, and other regions, is likely to surpass the anticipated global demand increase.
The oversupply could be exacerbated if OPEC proceeds with its planned unwinding of 2.2 mb/d of production cuts in 2025. If OPEC does not revise this strategy, DNB Markets forecasts that Brent oil prices could decline to USD 60–70 per barrel.
On the demand side, the outlook is equally concerning for OPEC. Global oil demand growth has slowed significantly, with only a 0.9 mb/d increase year-to-date in 2024 compared to 2.1 mb/d in 2023. The economic landscape, particularly the sluggish global GDP growth, a softening Chinese economy, and the fading impact of post-pandemic recovery, are contributing factors.
“We estimate global oil demand growth to slow to 0.95 mb/d YOY and 0.98 mb/d YOY for 2024 and 2025, respectively,” analysts said.
This subdued demand growth, coupled with strong non-OPEC supply, leaves little room for OPEC to increase its production without triggering a price decline.
Furthermore, analysts project that any significant geopolitical disruptions would be necessary to push oil prices substantially higher, given OPEC's comfortable spare production capacity.
DNB Markets suggests that OPEC may need to reconsider its production strategy. The analysts' base case is that OPEC will likely abandon its goal of increasing production in 2025 to defend oil prices. If OPEC were to proceed with its planned production increases, the oil market could experience a more significant oversupply, leading to lower prices.
In a worst-case scenario, OPEC might even initiate a full-fledged price war, further driving prices below $60 per barrel.