Oil Prices Poised for a Steep Decline
As the world shifts towards cleaner energies and transportation, oil prices are expected to take a hit. According to Bank of America analysts, the average oil price will plummet to $65 per barrel by 2025, driven by an oversupply of crude and slowing demand.
A Bearish Stance on Oil
Francisco Blanch, head of Bank of America’s global commodities and derivatives research, attributes this decline to the ample supply in world markets. “Oil is not going to be in short supply, so we’re adopting a bearish stance on oil for 2025,” Blanch stated during an energy outlook roundtable.
Current Market Trends
Currently, Brent, the international benchmark, is trading around $73 per barrel, while West Texas Intermediate futures hover around $70 per barrel. However, Blanch believes that the surge in domestic production, particularly in the US, Venezuela, and Iran, will prevent historically high price shocks like the one seen in 2022 after Russia invaded Ukraine.
OPEC’s Role in Shaping Oil Prices
The Organization of Petroleum Exporting Countries and its allies (OPEC+) have implemented output cuts to maintain a price floor. However, the oil alliance has expressed its desire to increase supply, a move that has been postponed twice already. Blanch notes that OPEC+ wants to regain market share, which will naturally cap prices.
Ramping Up Production
Looking ahead to 2025, Blanch foresees oil production increasing significantly across countries like Brazil, Guayana, Canada, and Argentina. This influx of supply, combined with softening demand, will exert downward pressure on oil prices.
Slowing Demand Growth
The Chinese economy, the world’s largest crude importer, has been struggling to recover from its housing collapse. Moreover, China is shifting towards electric vehicles and cleaner forms of energy, leading to slowing demand growth. “China’s demand growth has been slowing down for various reasons. We can’t rely on 50% of demand growth coming from China in the future,” Blanch emphasized.
Wall Street Analysts Concur
Other Wall Street analysts share Blanch’s bearish outlook on oil. JPMorgan analysts predict that global oil demand growth will decelerate from 1.3 million barrels per day this year to 1.1 million barrels per day next year. They expect Brent to slip from an average of $80 per barrel this year to $73 per barrel in 2025 and $61 in 2026.
A Shift in the Oil Landscape
As the world transitions towards cleaner energies and transportation, the oil landscape is poised to undergo a significant transformation. With oversupply and slowing demand growth on the horizon, oil prices are likely to experience a steep decline in the coming years.
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