The U.S. Energy Information Administration's (EIA) new short-term energy forecast confirms strong demand through 2025 but notes that the supply-demand balance will shift toward oversupply in the second half of this year and into 2026.
"We expect downward pressure on oil prices over much of the next two years as we expect growth in global oil production to outpace growth in global oil demand," the EIA wrote. We forecast that Brent crude oil prices will average in 2025 to reach $74 per barrel, down 8% from 2024, before continuing to fall 11% to $66 per barrel in 2026. "
Since the outbreak, the global oil market has experienced a complex landscape shaped by various economic, geopolitical and production-related factors. In 2025, the outlook remains fairly neutral, and despite potential challenges, forecasts point to relatively stable oil prices, although downward pressure remains.
One of the major demand-side factors affecting the oil market is the continued growth of the Chinese economy. As the world's second-largest economy, China's thirst for oil plays a pivotal role in shaping global oil consumption patterns. The continued expansion of China's industrial and transportation infrastructure has significantly increased global oil demand and helped stabilize oil prices. China's economic trajectory is expected to continue to have a positive impact on oil demand, driving global consumption to an estimated 104 million barrels per day (mb/d) by 2025.
(Chart: Environmental Impact Assessment)
Geopolitical events are often the source of volatility in oil markets and are a key consideration in 2025 forecasts. Despite potential disruptions, current forecasts suggest these events will not significantly disrupt the overall stability of oil prices. Factors such as international sanctions, especially those targeting major oil producers such as Russia, Iran and Venezuela, have affected the market by restricting the flow of crude oil. For example, the United States has imposed sanctions on more than 160 oil tankers linked to these countries, resulting in a nearly one-third reduction in Iranian crude oil exports in 2024. Despite these measures, global oil markets have shown resilience, maintaining a balance between supply and demand and mitigating the impact of Iranian crude exports. Such interference.
On the production front, the International Energy Agency (IEA) outlined strong prospects for OPEC+ and non-OPEC countries. OPEC+ countries are expected to significantly increase crude oil production, with the main member Saudi Arabia's production increasing from 8.98 mb/d to 12.11 mb/d. Other major players including Kuwait, Nigeria and the United Arab Emirates are also expected to increase production levels, collectively pushing OPEC+'s total potential output to 40.67 mb/d. On the non-OPEC side, production is expected to increase by 1.5 mb/d in 2025, unchanged from the previous year, bringing total non-OPEC production to approximately 15.16 mb/d.
Brent crude oil futures, the main benchmark for global oil prices, rose sharply in mid-January, hitting a four-month high of US$81 per barrel, up US$8 per barrel from the previous month. Likewise, West Texas Intermediate (WTI) prices remain strong, reflecting expectations for generally stable oil markets in 2025.
Demand forecasts reinforce claims that the oil market is stable. The Organization for Economic Co-operation and Development raised its oil demand forecast for the fourth quarter of 2024 by 250,000 barrels per day, indicating a strong rebound in consumption patterns. Throughout 2024, global oil demand growth is expected to increase by 90 kb/d, bringing the total to 940 kb/d. The upward revision is a testament to the recovery of the global economy and continued demand from emerging markets, especially China. The question is whether this is enough: the IEA expects a gradual supply glut to lead to lower prices in 2026 and 2027.
The expected stabilization and modest decline in oil prices has profound implications for U.S. production and industrial activity. $74 per barrel is enough to generate positive profits in the Permian Basin. Stable oil prices provide a favorable environment for continued investment in domestic oil production. U.S. oil producers can plan with greater certainty, potentially increasing exploration and drilling activity. This in turn supports energy industry job creation and economic growth. In addition, stable oil prices help maintain predictable input costs for industries that rely on petroleum products, thereby creating an environment of continued industrial activity and economic stability.
Despite the relatively positive outlook, certain challenges could pose risks to the expected stability of the oil market. Geopolitical tensions, while not expected to cause major disruption, remain a variable that could affect market dynamics. The effectiveness of U.S. sanctions and their long-term impact on target countries’ oil exports will be critical in determining the extent of their impact on global supplies. In addition, any unforeseen economic slowdown or shifts in energy policies, particularly those aimed at transitioning to renewable energy, could alter demand forecasts and price stability.
EIA predicts that the global oil market will remain stable in 2025, supported by strong production capacity and sustained demand driven by China's economic growth. Despite potential challenges posed by geopolitical events and sanctions, the market's inherent resilience and balanced supply and demand dynamics are expected to maintain price stability. This expected stability not only benefits the global economy by ensuring predictable energy costs, but also supports industrial activity and domestic production growth, particularly in major oil consuming countries such as the United States.
As the world continues to navigate complex energy needs and geopolitical tensions, oil market resilience will be a key factor in shaping economic outcomes. The interplay between rising production from OPEC+ and non-OPEC countries, coupled with continued demand growth, especially from emerging economies, sets the stage for a relatively stable oil landscape in 2025. Stakeholders from producers to consumers can look forward to softer but stable market conditions, but only if external disruptions remain contained and the global economy continues to grow as expected.
If the latter becomes stronger, then supply will exceed demand? The post Breaking down the latest EIA oil forecast appeared first on FreightWaves.