The Organization of the Petroleum Exporting Countries’ recent decision to extend its production cuts till the end of January has added more uncertainty to the oil market as we approach 2025. 

On Sunday, the cartel and its allies had extended the voluntary production cuts till the end of December to prop up crude oil prices. 

Eight members of the OPEC+ alliance were scheduled to unwind some of their voluntary output cuts from December by adding 180,000 barrels per day of crude oil to the market. 

However, as West Texas Intermediate oil prices slipped below $70 per barrel and Brent hit as low as $70, OPEC changed its course once again. 

Originally, the group was scheduled to unwind its steep voluntary production cuts of 2.2 million barrels per day in June this year. The cartel extended the cuts till the end of September, and then till December. 

“We had previously held a view that the lack of compliance amongst some members and the loss of market share that members were facing would push the group to increase supply,” ING Group’s analysts said in a note. 

 

However, it seems that the Saudis and the broader group may be more committed to supporting the market than originally thought.

As of now, OPEC+ is scheduled to roll back some of their voluntary output cuts from January. 

But, recent trends show that the cartel may once again choose to delay its decision as the oil market heads towards a significant surplus in 2025. 

Outlook for 2025 remains bearish

Besides geopolitical risks, the outlook for oil prices remains bearish in 2025. 

Concerns about poor demand from China continued to weigh on prices as imports from the world’s biggest importer fell again in October. 

According to the International Energy Agency, growth in global oil demand is only expected to rise by 900,000 barrels per day next year. 

In 2024, growth in global demand has been projected at just 1 million barrels per day by the Paris-based agency. 

Against such a backdrop, any increase in oil production from OPEC+ could add more unwanted barrels to the market. 

“China has been a key driver in the revisions lower of demand in recent months, where cumulative crude oil imports this year are down around 3% year-on-year,” according to ING Group. 

Increasing non-OPEC supply

Meanwhile, supply from outside the OPEC+ alliance is set to increase in 2025, according to the IEA. The agency believes that supply increases from countries such as the US, Brazil, Guyana and Canada are set to account for most of the increase. 

The production increases from these countries will more than cover the expected demand growth, according to IEA. 

Non-OPEC supply led by the US continued to make robust gains of around 1.5 million barrels per day in 2024. The growth will be a further 1.5 million barrels per day next year. 

The world’s largest producer of crude oil, the US, is producing around 13.5 million barrels per day of oil as of November 1, data from the Energy Information Administration showed. 

(Click on image to enlarge)

Source: ING Group

Production in the country is at record levels.Moreover, with Republican Donald Trump securing victory in the 2024 US presidential elections, supply is set to increase further. 

Trump is in favour of more drilling for oil and gas on federal US lands. He is also set to roll back several climate regulations passed under the current presidency of Joe Biden. 

This presents more headaches for OPEC+, which could lose more market share if they continue with their production cuts through 2025. 

Steep production cuts weigh on market share

OPEC+ has been adhering to steep production cuts for the last couple of years.

On top of the 2.2 million barrels per day of output cuts, the group has been cutting oil production by another 3.6 million barrels per day since last year. 

This means the group has been withholding around 5.8 million barrels per day of oil from the market currently, which is around 6% of total world supply.

The steep production cuts have eroded market shares of key exporters such as Saudi Arabia within the group. 

“OPEC+ spare production capacity stands at historic highs, barring the exceptional period of the Covid-19 pandemic,” the IEA said. 

Saudi Arabia, the de-facto leader of the cartel, had recently indicated that it would be willing to regain market share at the expense of lower oil prices. 

But, as soon as Brent prices were in danger of slipping below $70 per barrel, the group agreed to extend output cuts by another month. 

This leaves the market uncertain about the group’s next move.

Prices below desired levels

As many of the economies within the cartel depend on oil exports, the desired price level for OPEC+ countries is above $80 per barrel. 

The $80-per-barrel mark is largely the breakeven for many oil-producing countries in the Middle East. 

“Given weakening demand and rising oil supply outside OPEC+, there is no scope for OPEC+ to expand production without risking oversupply and a price decline,” Carsten Fritsch, commodity analyst at Commerzbank AG, said.

Therefore, OPEC+ is unlikely to have much of a choice in a month’s time other than to postpone the production increase again.

At the time of writing, WTI crude prices were $71.79 per barrel, down 0.8% from the previous close. Brent crude prices were at $75.16 per barrel, down 0.6%. 

According to ING Group’s estimates, Brent prices are likely to trade around $72 per barrel throughout 2025, which is more than $3 per barrel lower than the current price level. 

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