OPEC's control over the oil market has been weakening over the past year and now seems to have almost vanished. This is a concern for oil bulls entering 2025.
OPEC+ is scheduled to hold a meeting on Thursday to determine its oil production plan for 2025. Since 2022, the organization has kept nearly 6 million barrels per day of oil off the market, accounting for about 5% to 6% of the total global oil supply. OPEC+ initially stated that it would increase oil production by about 180,000 barrels per month starting in October, but it has since postponed the increase twice, expecting that this capacity will be restored in January next year.
As OPEC+ continues to restrain oil production, other countries have taken over market share. The United States, Canada, and Brazil are all increasing oil production to fill this gap.
When oil prices fell below $70 per barrel, OPEC+ had repeatedly intervened to cut production to support prices. However, as the organization's market share declines, the impact of these measures has weakened. Even with OPEC+ restraining such a large amount of oil production, most analysts expect oil prices to fall next year due to oversupply from oil producers outside of OPEC.
Most analysts believe that OPEC+ members will again delay the resumption of production at Thursday's meeting, possibly delaying it for several months. Given the significant uncertainty about how President-elect Trump's policies will affect the oil market, this seems reasonable.
If Trump starts a trade war, oil prices may continue to fall due to economic slowdown, and OPEC+ may have to further limit production.
If Trump escalates sanctions against Iran and Venezuela, supply may decrease and prices may rise. However, if this occurs, OPEC+ may want to increase production to fill the gap. According to data from Royal Bank of Canada Capital Markets, stricter sanctions on Iran and Venezuela would lead to a reduction of 750,000 to 1 million barrels per day, but this may not be enough to significantly alter the balance of the oil market.
For investors betting on oil, OPEC's weakened ability to raise prices means that the factors that could boost oil prices in 2025 are limited. Most analysts predict that, without broader geopolitical conflicts, international oil prices may remain around $70 or lower next year.
In fact, some analysts believe that the most notable action OPEC+ can take now is to stick to its guns and resume production starting in January next year. This way, the organization can reclaim market share from external producers.
But doing so would have a severe impact on the oil market. Mukesh Sahdev, head of global commodity markets at Rystad Energy, wrote that increasing supply in the short term would lead to "a significant drop in oil prices of about $20 per barrel, but this is the only way to control the growth of non-OPEC+ supply."
Article forwarded from: Jinshi Data