Analysts Predict Oil Prices Could Plummet to $40 Per Barrel Amid Potential OPEC+ Output Cuts Unwind

Market analysts are predicting a potentially challenging year ahead for the oil market, with concerns that the oil alliance OPEC+ may unwind its existing output cuts, leading to a sharp decline in oil prices. Tom Kloza, the global head of energy analysis at OPIS, an oil price reporting agency, expressed significant apprehension about oil prices in 2025, likening the current sentiments to the fears witnessed during the Arab Spring.

Impact of OPEC+ Decisions on Crude Prices

Kloza's assessment raises concerns that if OPEC were to unwind its production cuts without any concrete agreement to restrain production, crude prices could plummet to as low as $30 to $40 per barrel. He noted that if this scenario were to unfold, it would represent a 40% decrease in current crude prices, with global benchmark Brent currently trading at $72 per barrel and U.S. West Texas Intermediate futures at around $68 per barrel.

Forecasts and Predictions

Henning Gloystein, the head of energy, climate, and resources at Eurasia Group, emphasized that if OPEC+ were to fully unwind its supply cuts in 2025, it would undoubtedly lead to a steep decline in crude prices, possibly reaching the $40 per barrel mark. This projection aligns with the expectation of only a modest increase in oil demand growth next year, with a predicted growth of no more than 1 million barrels per day.

Saul Kavonic, a senior energy analyst at MST Marquee, echoed these concerns, suggesting that a disregarded unwind of cuts by OPEC+ could trigger a price war over market share, resulting in oil prices plunging to levels not witnessed since the Covid pandemic.

OPEC+'s Approach to Output Cuts

In light of these predictions, analysts believe that OPEC+ is more likely to adopt a gradual unwinding of output cuts early next year, rather than an immediate and full-scale unwinding. The oil coalition has demonstrated discipline in maintaining its voluntary output cuts, even extending them in response to price fluctuations. In September, OPEC+ postponed plans to begin gradually rolling back the 2.2 million barrels per day of voluntary cuts by two months to curb the decline in oil prices. Additionally, the cartel delayed the planned oil output increase by another month at the start of the month, pushing it to the end of December.

Global Demand and Supply Dynamics

Oil prices have been adversely affected by a slow post-Covid recovery in demand from China, a major crude oil importer. OPEC's monthly report indicated a decrease in the 2025 global oil demand growth forecast, reducing it from 1.6 million barrels per day to 1.5 million barrels per day. The prices have also faced upward pressure due to a perceived oversupplied market, particularly as non-OPEC producers such as the U.S., Canada, Guyana, and Brazil continue to plan for increased supply.

Market Consensus and Speculations

Market consensus suggests a substantial stock build next year, with Citibank energy strategist Francesco Martoccia predicting a potential market surplus of up to 1.6 million barrels per day if the producers' group proceeds with its production plan. Even if OPEC+ does not unwind the cuts, Citi analysts anticipate an average Brent price of $60 per barrel next year.

The potential return of U.S. President-elect Donald Trump has further fueled the bearish outlook for the oil market. Analysts raised concerns about a possible trade war, particularly with China, which could significantly impact oil prices. Trump's proposed "drill baby drill" policy for U.S. producers, along with his ambition to reduce energy prices, has added to the uncertainties in the oil market.

Predictions and Projections

Matt Smith, Kpler's lead oil analyst, highlighted that for retail gasoline prices to be halved, oil prices would need to drop to below $40 per barrel. Currently, retail gasoline prices stand at $3 per gallon, a level where consumers are not feeling the impact significantly while producers are still experiencing reasonable input prices.

The interplay of OPEC+'s decisions, global demand and supply dynamics, and geopolitical factors will continue to shape the oil market outlook. As market watchers closely monitor these developments, the potential for a bearish year ahead for the oil market remains a key area of concern.