Oil market exhibits excessiveness due to sluggish consumption from prominent economies worldwide
The International Energy Agency (IEA) has revised its forecast for world oil supply, predicting a rise of 2.5 million barrels per day (bpd) in 2025, up from the previous forecast of 2.1 million bpd. This increase is expected to put pressure on the global oil market balance, with OPEC+ leading the production surge.
OPEC+, the group of oil-producing countries led by Saudi Arabia and Russia, has been raising production substantially. In 2025, OPEC+ is set to increase output by approximately 335,000 bpd in July and a further 547,000 bpd in September, as part of its decision to unwind its most recent layer of output cuts more rapidly than earlier scheduled.
The increased production is expected to outpace demand growth, with the IEA forecasting that global oil demand will rise by 700,000 bpd in 2022, 680,000 bpd in 2021, and 680,000 bpd in 2026. Non-OPEC producers, including the US, Canada, Brazil, and Guyana, will lead supply growth this year and next, according to the IEA.
As a result, the U.S. Energy Information Administration (EIA) forecasts that the excess supply scenario will lead to falling crude oil prices, with Brent crude expected to decline below $60 per barrel by the end of 2025 and average near $50 per barrel through 2026. The rapid increase in production amidst slower demand growth is expected to cause growing inventory builds and price pressure.
News analyses forecast a potential global oil surplus of about 2 million barrels per day by 2026, indicating an oversupplied market, which would help keep prices above $60 but under downward pressure. The market has also seen lower trading prices in response to anticipated supply increases, as evident from crude price declines following announcements of production hikes.
The increase in global refinery runs is driven by better-than-expected data for the Organisation for Economic Co-operation and Development and China. However, the European Union's lowering of a price cap for Russian oil as part of its latest sanctions on Moscow may curb supplies from the world's third-largest oil producer.
In summary, the increase in OPEC+ oil production and supply in 2025 and 2026 is expected to create an oil supply surplus relative to demand growth, drive inventory increases, contribute to downward pressure on crude prices, and keep prices around or slightly above $50-$60 per barrel despite economic optimism boosting demand forecasts. This will result in a market balance tilted towards oversupply, potentially constraining price gains, and impacting global oil market stability in 2025 and 2026.
References:
- IEA
- EIA
- Reuters
- Bloomberg
- Wall Street Journal
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