Signs point to stable to lower crude oil prices in 2025 because global production is expected to easily keep up with demand.
Further downward pressure on prices might develop with the return of Donald Trump to the White House and a Republican majority in the U.S. Senate and maybe the House of Representatives.
The new political situation in the United States will likely lead to a “drill baby, drill” attitude, with less emphasis on environmental regulation and approval of drilling on federal lands and offshore.
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The policies might help increase U.S. domestic production, but Trump might also put sanctions on Venezuelan and Iranian oil.
However, any forecast must also note the potential for frictions between Israel and Iran to escalate, leading to the chance of price spikes.
The West Texas benchmark oil price has already dropped below US$70 for several periods this autumn, which is less than forecasts posted earlier this year. Analysts are now talking about an extended period of global surplus oil.
Even the traditionally bullish demand outlook from the Organization of Petroleum Exporting Countries has been scaled back.
Early this year, OPEC forecast that demand would climb by 2.25 million barrels per day.
It cut its numbers in subsequent forecasts, and October’s report pegged 2024 demand growth at only 1.93 million bpd.
It also slashed its forecast of global oil demand growth for 2025, lowering the expected growth to 1.6 million bpd, down by 102,000 bpd.
Other forecasters such as the International Energy Agency and the U.S. Energy Information Administration have also lower demand forecasts.
The main driver of weak demand growth is the anemic Chinese economy.
In the third quarter, its gross domestic product grew at 4.6 per cent compared to the same period the previous year, but that is slower than the government’s target of five percent.
It is strong compared to western economies, but well down from the six to seven percent annual growth China experienced before the COVID pandemic.
China’s increasing adoption of electric and non-diesel vehicles is also trimming oil demand. Analysts note an increased use of large trucks fuelled with liquified natural gas, which is cheaper than diesel in China.
A story in the Australian Financial Review said natural gas trucks made up 42 per cent of China’s heavy-duty truck sales from January to August, compared with just nine per cent in 2022, according to data from CV World, a Beijing-based commercial vehicle research firm.
Electric car sales are doing well in China. In September, almost 52 per cent of all new car sales were electric or hybrid, according to the China Association of Automobile Manufacturers.
The association forecasts that electric vehicle sales for the year will reach 12 million units.
That is much stronger than in the United States, where an estimated 8.9 per cent of vehicle sales were EVs in the third quarter of this year, up from 7.8 per cent in the same period last year.
In Canada in the second quarter, almost 13 per cent of all new vehicles registered were battery EVs or plug in hybrids, up from 10 per cent a year ago.
With global oil demand increases far from impressive, production has easily kept up.
Countries outside the OPEC+ cartel have raised production and exports to the point that OPEC decided that it would continue to curtail production for the time being.
OPEC started trimming production in 2023 and by November that year was limiting production by 2.2 million barrels a day.
Those cuts were to be reviewed and added back this year as OPEC hoped demand and oil prices rose. However, the demand did not materialize and so now they will stay in place until another review in 2025.
In the meantime, other non-OPEC producers are increasing output.
The U.S., which is the world’s largest oil producer, posted record high production of 13.5 million bpd in October. That is up from 13.2 million at the same time a year ago and tops the previous weekly record set just before the COVID shutdowns in 2020.
Western Canadian production from January to July averaged 5.01 million barrels a day, up almost six per cent over the 2023 average.
Brazil and Guyana have also significantly increased production.
Reuters recently polled major oil analysts about oil prices in 2025.
Their forecast for WTI is to average US$72.73 per barrel, down about $4 from the average for 2024.
They forecast the international benchmark, Brent crude, at $76.61 per barrel, also down about $4.
Some analysts are particularly bearish, such as Citigroup’s Max Layton, who thinks prices could drop to $60 next year, while J.P. Morgan Research has a 2025 average price forecast of $75, with the possibility of the low $60s near the end of the year.
