Oil Prices Could Plunge to $40 a Barrel in 2025, Analysts Warn Amid OPEC+ Uncertainty
Oil prices are currently facing a period of heightened uncertainty, with market analysts predicting a significant decline in 2025 if the influential oil cartel OPEC+ unwinds its production cuts. This anticipated market disruption could see oil prices drop to levels not seen since the early days of the COVID-19 pandemic, potentially reaching as low as $40 per barrel. Such a drop would represent a drastic 40% decrease from the current price of crude oil, which is hovering around $72 per barrel for Brent crude and $68 per barrel for U.S. West Texas Intermediate (WTI) futures.
While these numbers may seem extreme, the market dynamics at play—sluggish demand growth, an oversupplied market, and uncertainty surrounding OPEC+’s future decisions—have made this scenario increasingly plausible. This article delves into the factors contributing to this bearish outlook, examining the role of OPEC+, global oil demand, and geopolitical developments that could shape the oil market in the coming year.
OPEC+ and the Risk of a Price War
The biggest wildcard in the oil market remains the behavior of OPEC+, a coalition of 23 oil-producing countries, including Saudi Arabia and Russia, that has controlled a significant portion of the world’s crude supply for years. OPEC+ has implemented production cuts as a way to prop up prices in response to a variety of market factors, including the COVID-19 pandemic, geopolitical instability, and an ongoing energy transition.
Currently, OPEC+ is maintaining voluntary production cuts of around 2.2 million barrels per day. These cuts were extended through December 2023 in a bid to stabilize the market, as oil prices had been sliding due to factors such as weak demand from China and oversupply concerns. However, the prospect of OPEC+ unwinding these cuts in 2025 has analysts worried about a sharp decline in prices. If OPEC+ were to roll back its production cuts too quickly, or fail to agree on a strategy to rein in production, oil prices could fall precipitously.
Tom Kloza, the global head of energy analysis at OPIS, has expressed concern that the oil market is heading into uncharted territory. "There is more fear about 2025’s oil prices than there has been since the Arab Spring," Kloza said, referring to a period of major geopolitical upheaval that rattled global oil markets. Kloza believes that if OPEC+ were to completely unwind its output cuts without a corresponding increase in demand, the oil market could experience a "price war," leading to a drastic price drop. This would be a battle for market share, with oil producers flooding the market to compete for consumers, but with nowhere near enough demand to support the supply.
The idea of a "price war" is particularly alarming for the oil market. A price war would likely result in a sharp price plunge, similar to what happened during the 2020 oil price collapse when oil futures briefly turned negative due to an unprecedented drop in demand during the peak of the pandemic. If OPEC+ accelerates the unwinding of production cuts, it could lead to a flood of oil on the market, pushing prices down below $40 per barrel.
The Impact of Global Demand and Oversupply
One of the primary reasons behind the bearish outlook for oil prices in 2025 is sluggish global demand growth. The oil market has yet to fully recover from the pandemic’s impact on consumption, and demand growth is expected to remain weak in the coming year. According to OPEC’s latest forecast, global oil demand is projected to grow by just 1.5 million barrels per day in 2025, down from 1.6 million barrels per day in previous projections. While this may seem like a modest increase, it is still insufficient to offset a large rise in supply, especially if OPEC+ unwinds its production cuts and other major producers—such as the United States, Brazil, and Canada—continue ramping up output.
The prospect of an oversupplied market is particularly troubling for oil prices. Countries outside of OPEC+ have increased production in recent years, contributing to a global glut of crude. For example, U.S. shale oil producers have boosted their output, and countries like Brazil and Guyana have seen significant increases in their oil production. This growing supply of oil, combined with weak demand, risks flooding the market and driving prices lower.
Henning Gloystein, head of energy, climate, and resources at Eurasia Group, warned that the combination of weak demand and oversupply could lead to a significant price decline. "If OPEC+ were to unwind its production cuts completely, we could see a very steep slide in crude prices, possibly toward $40 a barrel," he said. Gloystein noted that the growing supply from non-OPEC producers like the U.S. is a key factor driving the current market imbalance. With more oil entering the market and demand growth remaining stagnant, the potential for a price crash is significant.
The Role of Geopolitics in Shaping Oil Prices
Geopolitical factors also play a critical role in shaping the future of oil prices. The global political landscape is marked by uncertainty, with many countries dealing with internal strife, trade tensions, and international conflicts. In particular, the potential for a trade war involving the U.S. could have major implications for oil prices. If the U.S. were to enter into a trade conflict, particularly with China—one of the world’s largest consumers of oil—the resulting economic slowdown could further dampen global demand for oil.
The upcoming administration of President-elect Donald Trump has raised concerns among market analysts. Trump’s rhetoric, which has often included promises of boosting U.S. energy production through policies such as "drill baby drill," could contribute to downward pressure on oil prices. Trump has also called for energy prices to be lowered, a stance that some analysts believe could result in a significant decrease in oil prices. Matt Smith, Kpler’s lead oil analyst, has pointed out that if oil were to fall to below $40 per barrel, retail gasoline prices would also see a significant reduction, providing relief to consumers at the pump but wreaking havoc on producers’ profit margins.
Furthermore, Trump’s trade policies, especially if they lead to tensions with China, could exacerbate the global oil supply-demand imbalance. A trade war could undermine global economic growth, leading to lower energy consumption worldwide, which would further reduce demand for crude oil.
The Future of Oil Prices: A Bearish Year Ahead
The consensus among market analysts is that oil prices are headed for a difficult year ahead. Even if OPEC+ does not unwind its production cuts, analysts expect oil prices to remain under pressure. Citibank’s energy strategist Francesco Martoccia predicts that the market will experience a "substantial" stock build in 2025, with a surplus of up to 1.6 million barrels per day. If this surplus materializes, oil prices could face significant downward pressure, even if OPEC+ continues to maintain its output restrictions.
Citi analysts forecast that Brent crude will average $60 per barrel in 2025, which is far below the current price levels. However, some analysts are even more pessimistic, predicting that prices could dip as low as $40 per barrel if the market becomes flooded with oil due to an unwinding of OPEC+ cuts and an oversupplied market.
Despite the bearish outlook, there are still some opportunities for oil producers to adapt. As always, much depends on the decisions made by OPEC+ in the coming months, as well as the broader geopolitical environment. If OPEC+ can maintain discipline and carefully manage its production cuts, it may be able to stave off a price collapse. However, if the cartel overestimates demand growth or fails to account for the rise in supply from non-OPEC producers, a significant price decline could be on the horizon.
Related: Skyrocketing Coffee Prices Are Draining Your Wallet
Related: European Markets Plunge as U.S. Election Sparks Economic Concerns and Mining Stocks Decline
The oil market in 2025 is poised for a period of volatility and uncertainty. With OPEC+ facing pressure to unwind its production cuts, coupled with weak demand growth and an oversupplied market, the possibility of oil prices dropping to $40 per barrel has become a realistic scenario. While geopolitical factors, particularly potential trade wars and U.S. energy policies, add further complexity to the situation, the outlook for oil prices remains bearish in the short term.
For now, oil producers and investors must navigate a market that is both unpredictable and challenging. The decisions made by OPEC+ in the coming months will be critical in determining whether the market can avoid a steep price decline or whether the world will see oil prices plummet to $40 per barrel in 2025.
