2025 a headache likely for OPEC By Investing.com

2025 is shaping up to be a challenging year for the Organization of the Petroleum Exporting Countries (OPEC). Analysts at DNB Markets forecast significant difficulties for OPEC in maintaining oil prices and market balance due to several converging factors.

Analysts examine the key challenges OPEC is expected to face, including potential oversupply, sluggish global demand and the implications of its production strategy.

OPEC’s problems are mainly rooted in the expected market dynamics for 2025. “We expect the oil market to shift to moderate oversupply, even if OPEC extends its existing production cuts,” the 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-on-year (YOY) in 2023, and while this growth is expected to slow, it will still average 1.5 mb/d per year in 2024 and 2025.

This sustained increase in supply from non-OPEC sources, including the United States, Brazil and other regions, is likely to outpace anticipated growth in global demand.

The oversupply could be exacerbated if OPEC continues with its planned 2.2 mb/d reduction in production cuts in 2025. If OPEC does not revise this strategy, DNB Markets estimates that prices could fall to $60-70 per barrel.

On the demand side, the outlook is equally worrying for OPEC. Global oil demand growth has slowed significantly, with growth of just 0.9 mb/d so far in 2024, compared to 2.1 mb/d in 2023. The economic landscape, particularly sluggish global GDP growth, a weakening Chinese economy and the impact of the slowing post-pandemic recovery are contributing factors.

“We estimate global oil demand growth to slow to 0.95 mb/d per year and 0.98 mb/d per year for 2024 and 2025, respectively,” the analysts said.

This subdued demand growth, coupled with strong non-OPEC supply, leaves little room for OPEC to increase its output without triggering a drop in prices.

Moreover, analysts estimate that any significant geopolitical disruptions would be needed 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. Analysts’ base case is that OPEC will likely abandon its 2025 production increase target to defend oil prices. If OPEC were to continue with planned production increases, the oil market could face a more significant oversupply, leading to lower prices.

In a worst-case scenario, OPEC could even start an all-out price war, driving prices below $60 a barrel.