Oil Market Outlook 2025: Wells Fargo Predicts Subdued Prices Amid Global Oversupply Risk
Wells Fargo analysts have forecasted that oil prices will continue to remain subdued through 2025 due to the heightened risk of global oversupply. Factors such as slowing demand from key economies like China and the ongoing growth of U.S. shale production are contributing to a bearish outlook on oil prices.
Despite current tight inventories, the expected easing of OPEC+ production cuts by the end of 2024 further supports the likelihood of a supply surplus in the coming year. This shift in the oil market is expected to move from supply tightness in 2024 to a potential oversupply by 2025.
Both the U.S. and China, which have traditionally been strong drivers of global oil demand, are showing signs of slowing growth. In the U.S., shale oil production has reached maturity, leading to a deceleration in growth rates. Similarly, China’s economic growth moderation is reducing its demand for oil, impacting global oil price trends.
By 2025, global oil supply is projected to exceed demand by approximately 1 million barrels per day during peak production months. This increase in supply is driven by non-OPEC producers such as the U.S. and Brazil, along with planned production hikes by OPEC.
Wells Fargo has revised its oil price forecasts downward, with expectations for Brent to average $70 per barrel and West Texas Intermediate (WTI) crude to average $65 per barrel in 2025. While these prices are lower than the highs seen in previous years, they remain above levels during historical demand slumps.
One crucial factor preventing further price drops is Saudi Arabia’s preference for maintaining prices above $70 per barrel to balance revenue generation and market share. The current oil market situation is drawing comparisons to 1998, when a global economic slowdown and increased supply led to a collapse in oil prices.
Investor sentiment reflects uncertainty, with speculative interest in crude oil futures turning net negative, indicating expectations of further price weakness in the short term. While U.S. shale production has been a significant driver of global oil supply growth, it is now showing signs of maturity, with overall production growth slowing down.
Despite the slowdown in crude oil production, the output of liquids continues to rise, particularly NGLs which are used in petrochemical production. This shift in the U.S. energy landscape towards NGLs could have long-term implications for global supply and price stability.
Several factors could impact the trajectory of oil prices, including a faster-than-expected recovery in global demand or geopolitical risks in oil-producing regions. These factors could tighten the market and lead to price spikes.
In conclusion, the oil market is facing challenges that could result in subdued prices through 2025. Investors should be mindful of the potential oversupply risk and factors influencing global oil demand, as they could have implications for their investments and financial decisions.