Key takeaway: Bullish oil prices to $90 over the next 3 months and bearish oil prices below $60 by the end of 2025.
EIA's forecast for global oil supply and demand over the next year or so
According to EIA data, global oil supply and demand will be slightly surplus for three consecutive months from March to May 2024, with a surplus of 57, 51, and 130,000 barrels per day, but from June, there will be four consecutive months of supply shortages from June to September, with shortages of 146, 13, 48, and 1.09 million barrels per day, respectively. In other words, there will be a shortage of global oil supply in the summer of 2024, which may mean that international oil prices will rise in the next 3-4 months.
From May to September 2023, there was a supply shortage in global oil supply for five consecutive months, while international oil prices rose for four consecutive months from June to September 2023. The trend in oil prices does reflect the short-term global oil supply and demand situation well.
According to the EIA's forecast, there will still be four consecutive months of supply shortages from June to September 2024, and the shortages are relatively close to the same period in 2023, which may also mean that international oil prices will also rise in the next 3-4 months. And if there is no major negative impact on the global economic situation in the next three months, international oil prices may hit or $90 in September.
However, for May-November 2025, the EIA expects a global oil oversupply, which will be significantly higher than in 2024 and 2023. The EIA's forecast is likely based on OPEC+ raising its oil production benchmark on a month-to-month basis starting in October 2024, and by the end of 2025, OPEC+'s oil production benchmark will increase by about 2.5 million barrels per day, equivalent to an average annual increase of about 1.25 million barrels per day. OPEC's production increase measures in the next year or so may lead to a global oil oversupply.
Obviously, for international oil prices in 2025, due to the obvious difference between the balance of supply and demand in 2024 and 2023, there is reason to believe that international oil prices in 2025 will be significantly lower than in 2024. In 2025, international oil prices may fall below $60 or even reach the extreme of $50 (such as a negative shock to the global economy that deteriorates)
The impact of OPEC's increase in production on oil prices is expected to be significant
OPEC+'s oil production fell sharply under the impact of the new crown epidemic in 2020, and has continued to grow since then, and OPEC+ has continued to reduce oil production since the fourth quarter of 2022, and so far, OPEC+ oil production has fallen to a low level again. Starting in October 2024, OPEC+ will once again enter a production increase cycle that will last until the end of 2025.
However, from the fourth quarter of 2024 to the fourth quarter of 2025, OPEC+'s production increase is relatively small, and it will still not return to the peak level in the third quarter of 2022, nor will it return to the peak level before 2020. This is mainly due to the rapid growth of oil production in other oil-producing countries such as the United States, Brazil, Canada and other countries, which restricts OPEC+'s efforts to increase oil production.
The OPEC+ meeting on June 2 raised the UAE's oil production benchmark for 2025 by 300,000 b/d, while deciding to keep oil production unchanged from June to September 2024 and increase production month-on-month from October 2024.
Algeria, Iraq, Kuwait, Saudi Arabia, the United Arab Emirates, Kazakhstan, Oman, and Russia will raise their oil production benchmarks for more than a year, while the rest of OPEC+ will remain unchanged. The oil production benchmark for the adjusting countries remained unchanged at 30.416 million b/d from June to September 2024 and rose to 32.88 million b/d by September 2025 until the end of 2025.
It can be seen that from September 2024 to September 2025, the OPEC+ oil production benchmark has increased by 2.464 million barrels per day, which is actually relatively high, equivalent to about 2.3% of global oil demand. Global oil demand typically does not increase by more than 2 million barrels per day per day. It can be seen that even if other countries do not increase oil production for more than a year in the future, the production growth of OPEC+ alone is enough to offset the increase in global oil demand, not to mention the inertia of oil production growth in American countries, such as the United States, Canada, Brazil, and Guyana.
Therefore, it is relatively certain that because OPEC+ will increase production by more than 2 million barrels per day in the next year or so, which is enough to change the balance of global oil supply and demand, there is a high probability that there will be a continuous surplus of global oil supply in 2025, which is enough to lead to a low level of international oil prices in 2025.
OPEC expects U.S. oil production to increase by 440,000 barrels per day in 2024 and 500,000 barrels per day in 2025, becoming the country with the strongest oil production growth in the next 1-2 years.
The increase in the U.S. Strategic Petroleum Reserve could slow the pace of oil price decline
Although OPEC+ production increases are likely to have an impact on national oil prices in the next year or so, there are some factors that may slow down the pace of oil price decline, mainly the increase in the US Strategic Petroleum Reserve.
Due to the sharp rise in international oil prices, the United States will sell off the Strategic Petroleum Reserve in 2022 to suppress oil prices and reduce the inflation rate in the United States. The U.S. Strategic Petroleum Reserve fell by nearly half from a peak of around 650 million barrels to 350 million barrels in 2023.
Since the second half of 2023, international oil prices have been at a relatively low level, and the inflation rate in the United States has eased, and the United States has resumed the increase in strategic petroleum reserves. So far, the U.S. Strategic Petroleum Reserve has rebounded to 370 million barrels, albeit less but reflecting a reversal of the U.S. oil reserve policy.
Since the current U.S. strategic petroleum reserves are at an extremely low level, the lowest in more than 40 years, the United States will inevitably continue to increase its strategic petroleum reserves in the long run. If oil prices fall below $70 or even $60 in the future, the United States will inevitably increase its holdings of oil reserves.
Since 2024, the U.S. Strategic Petroleum Reserve has increased by an average of about 150,000 barrels per day per day. It is equivalent to contributing an additional 150,000 barrels per day of oil demand, which is still relatively slow and does not significantly boost oil demand and curb the decline in oil prices.
It is foreseeable that if oil prices fall more, the United States will inevitably increase its efforts to increase reserves, possibly from the current 150,000 barrels per day to 300,000 barrels per day, or even 500,000 barrels per day.
Therefore, we can pay attention to the strength of the increase in the US strategic petroleum reserve in the future.
Forecast of international oil price trend in the next year and a half
In the short term, from June to September 2024, due to the seasonal growth in oil demand and the low level of OPEC+ production, there is a high probability of an oil supply shortage, and oil prices are expected to rise from the current below $80, possibly hitting $90 in September, or even breaking through $90.
However, starting from October, international oil prices may continue to fall from October due to the beginning of the OPEC+ production increase cycle and the gradual entry into the off-season of oil demand.
The entire 2025 international oil price will be shrouded by OPEC+'s increase in production, and the oil price fluctuation center will be significantly lower than in 2024 and 2023, and the oil price fluctuation center may drop to $60-65. If the weakening global economy hits oil demand, oil prices cannot be ruled out falling below $60 or even touching $50 in 2025.
All in all, bullish oil prices to $90 in the next 3 months and bearish oil prices below $60 by the end of 2025.
(Data in this article from EIA, OPEC)