Oil prices could plunge to $60 per barrel in 2025, Citi says

Oil prices will likely plunge in 2025 as the market enters a “substantial surplus” on softening demand due to electric vehicle adoption and greater energy efficiency, while production outside OPEC grows, according to Citi. The price of global benchmark Brent will start dropping in the fourth quarter of 2024 before settling at $60 per barrel in 2025 as world crude inventories rise by 1.4 million barrels per day, or bpd, next year, according to the bank’s base case. OPEC+ members recently announced plans to bring 2.5 million bpd back to the market from October through September 2025. Even if OPEC+ completely calls off its plan to increase production, the market would still see a surplus of 900,000 bpd, Citi analysts told clients in a Wednesday note. This is because oil production outside OPEC is set to grow by a solid 1.8 million bpd in 2025 driven by North America, Brazil and Guyana, far outpacing slowing demand growth of 900,000 bpd, according to the bank. “Demand growth slowing reflects increasing energy efficiency and growing EV oil displacement,” the Citi analysts said. “Without supply disruptions, OPEC+ looks hard-pressed to return oil to market, without also accepting a lower price range.” Under Citi’s base case, OPEC+ will delay rolling barrels back onto the market until the middle of 2025. If the group follows through with its announced plan, the oil market will see a surplus of 2.6 million bpd or more. Brent prices could fall below $50 per barrel by the end of next year in the bank’s most bearish scenario. The bank recommends investors use any strength in oil prices over the coming months to prepare for the approaching downturn. It is not just Citi that sees trouble ahead. Deutsche Bank analyst Michael Hsueh said the OPEC+ production plan will cast a bearish shadow over the next two years . It is “inconceivable that the market could absorb anything close” to 2.5 million bpd, Hsueh said. That number is based on the phase out of cuts from eight OPEC+ members and the United Arab Emirates raising its production. Deutsche Bank sees Brent falling below $60 per barrel if OPEC+ carries out its plan in full. The bank, however, expects OPEC+ will increase production more modestly, with Brent falling to $75 per barrel by the end of 2025. TD Securities has also said “the fundamental situation could quickly begin to worsen” in 2025 if OPEC+ moves forward with its production increases. The International Energy Agency warned Wednesday the world will be awash in oil by 2030, with production capacity outpacing demand projections by eight million bpd. This would result in a level of spare capacity only seen during the height of the Covid-19 pandemic, with major consequences for OPEC economies and the U.S. shale industry, according to the IEA. “As the pandemic rebound loses steam, clean energy transitions advance, and the structure of China’s economy shifts, growth in global oil demand is slowing down and set to reach its peak by 2030,” IEA executive director Fatih Birol said in a statement Wednesday.