The Organization of the Petroleum Exporting Countries (OPEC) is facing a potentially tumultuous year in 2025. DNB analysts have forecast significant difficulties for OPEC in maintaining oil prices and market balance due to several converging factors, discussed below.
Potential Oversupply Looms
One of the primary concerns for OPEC in 2025 is the potential for oversupply in the oil market. The OPEC forecasts from DNB analysts have pointed 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.
While this growth is expected to slow down, it will still average 1.5 mb/d year-over-year in 2024 and 2025. This sustained supply growth from non-OPEC sources, including the United States and Brazil, 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.
Sluggish Global Demand
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. Contributing factors include the sluggish global GDP growth, a softening Chinese economy, and the fading impact of post-pandemic recovery in the economic landscape.
“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.
Implications of OPEC's Production Strategy
OPEC's production strategy will determine how the organization navigates the challenges of 2025. 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. This scenario reveals the delicate balance OPEC must maintain to avoid destabilizing the market.
Geopolitical and Economic Factors
Geopolitical and economic factors will also play a significant role in shaping OPEC's fortunes in 2025. Any significant geopolitical disruptions could push oil prices substantially higher, given OPEC's comfortable spare production capacity. However, the overall economic environment, including factors such as global GDP growth and the performance of major economies like China, will heavily influence oil demand and prices.
Final Insights
The year 2025 is shaping up to be a challenging one for OPEC. The organization will need to carefully navigate the potential oversupply, sluggish global demand, and the implications of its production strategy.
Analysts from DNB Markets have highlighted the importance of OPEC's decisions in maintaining market stability and avoiding a significant price decline. As the year approaches, all eyes will be on OPEC to see how it manages these complex dynamics.