Oil prices are heading for one of their steepest weekly declines this year, despite recent moves by OPEC+ to delay a planned increase in output. As of Friday, Brent crude was trading near $73 a barrel, down more than 7% for the week, while West Texas Intermediate (WTI) hovered around $69. The slump comes as key members of the OPEC+ coalition, which includes major oil producers like Saudi Arabia and Russia, decided to postpone a planned production boost of 180,000 barrels per day originally set for October and November.
However, the longer-term plan to gradually revive 2.2 million barrels per day of idle supplies remains on track, with the completion date now extended by two months to December 2025. This decision reflects the coalition's cautious approach to balancing global oil supply in the face of uncertain economic conditions.
Tamas Varga, an analyst at brokerage PVM, expressed skepticism about the strategy's effectiveness. "One wonders when the patience of intentionally giving up market share with no return in sight could run out," he noted in a report. The ongoing decline in oil prices, despite these measures, underscores the challenges OPEC+ faces in managing market dynamics.
Oil futures have been trending downward since early July, largely driven by concerns over the economic outlooks of China and the United States, the world's top two oil consumers. These fears have stoked anxiety about a potential decline in demand. Meanwhile, a steady increase in crude production in the U.S., now the world's largest oil producer, has added supply pressure, further complicating efforts to stabilize prices.
Even with the OPEC+ delay and an almost 7 million barrel drop in U.S. crude inventories reported this week, oil prices have struggled to gain upward momentum. As market participants look ahead, next week's monthly market outlooks from OPEC, the Energy Information Administration (EIA), and the International Energy Agency (IEA) will be closely watched for further guidance on future price trends.
Analysts at Citigroup are not optimistic about the near-term prospects for oil prices. In a note to clients, Citi strategists, including Eric Lee, warned that they foresee a significant market surplus emerging by 2025, which could push oil prices down to the $60 per barrel range. "We see the OPEC+ unwind delay, ongoing geopolitics, and financial positioning providing price support at $70 to $72 Brent in the short term," the note stated. However, the analysts added, "moves down to the $60 range in 2025 as a sizable market surplus emerges."
Citigroup's bearish outlook is shared by analysts at Bank of America (BofA), who have revised their oil price forecasts downward. BofA's Commodities Research team now predicts that Brent oil prices will average $75 per barrel in the second half of 2024, down from nearly $90 previously, and around $70 in 2025, reduced from earlier projections of $80. The team cited concerns about growing global oil inventories and weaker-than-expected demand growth as key factors behind the revision.
"In effect, we now see Brent oil prices moving from the top toward the middle of our unchanged $60-80/bbl medium-term range faster than previously warned," BofA strategists said in their report. They highlighted that OPEC+'s substantial spare capacity-estimated to exceed 5 million barrels per day-along with slowing demand, diminishes the likelihood of any significant price spikes, even in the face of potential geopolitical disruptions.
This surplus in capacity has led to a more cautious outlook for the oil market, with analysts suggesting that the risk of sudden price increases due to unforeseen events, such as conflicts in key oil-producing regions, has been significantly reduced. Instead, the focus has shifted to how global economic conditions and OPEC+'s ability to manage supply will shape the market in the coming years.
