Oil Prices on the Brink of a Steep Decline
The oil market is bracing for a potential crash in 2025, with prices plummeting as low as $30 or $40 a barrel if OPEC+ decides to unwind its current output cuts. This drastic fall would erase around 40% of current crude prices, sending shockwaves through the global economy.
OPEC’s Voluntary Cuts Under Pressure
The oil cartel has been exercising discipline in maintaining its voluntary output cuts, but the pressure is mounting. In September, OPEC+ postponed plans to begin gradually rolling back on the 2.2 million barrels per day of voluntary cuts by two months, and again delayed the planned oil output increase by another month to the end of December.
Sluggish Demand and Oversupply
Oil prices have been weighed down by a sluggish post-Covid recovery in demand from China, the world’s second-largest economy and leading crude oil importer. Additionally, the market is perceived to be oversupplied, with key oil producers outside the OPEC alliance planning to add supply.
Market Consensus: Substantial Oil Stock Build
The market consensus is that there will be a “substantial” oil stock build next year, with Citibank energy strategist Martoccia Francesco predicting that the market surplus could nearly double, reaching as much as 1.6 million barrels per day.
Bearish Outlook
Even if OPEC+ doesn’t unwind the cuts, the future of oil prices is still looking bleak. Citi analysts expect Brent price to average $60 per barrel next year, and the incoming administration of U.S. President-elect Donald Trump is associated with a potential trade war, which could further fuel the bearish outlook.
Trade War Fears
“If we do get a trade war — and a lot of economists think that a trade war is possible, and particularly against China — we could see much, much lower prices,” said OPIS’ Tom Kloza. Trump has also touted a “drill baby drill” policy for U.S. producers, vowing to cut energy prices in half.
Retail Gasoline Prices at a Crossroads
Right now, retail gasoline prices are at a “sweet spot” at $3 per gallon, where consumers do not feel the pinch and input prices are still sufficiently high for producers. However, if oil prices were to drop to “below $40” per barrel, retail gasoline prices could plummet, having a significant impact on the economy.
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