Wells Fargo Analysts Predict Slower Global Oil Production Growth in 2025
In a recent report, Wells Fargo analysts forecast a deceleration in global oil-production growth for the upcoming year. They attribute this trend to persistent cost pressures and supply constraints impacting the oil market.
Despite fluctuations in oil prices throughout 2024, prices have remained relatively stable since the beginning of the year. This stability reflects a balancing act between concerns about the global economy and shrinking production capacity, with the latter expected to take precedence in 2025.
One key factor contributing to this slowdown is the increasing cost of drilling new wells. The average breakeven cost for new wells in the U.S. has risen to around $65 per barrel, a 6% increase from the previous year. With current oil prices hovering around $72 per barrel, there is limited incentive for producers to ramp up drilling activities.
As a result, production growth in the U.S., the world’s largest oil producer, and other key regions is likely to be constrained, leading to tighter supply conditions in the coming year. On the demand side, expectations of economic recovery driven by global monetary easing could boost energy demand, including oil, and potentially drive prices higher in 2025.
Despite technological advancements in the oil sector, structural issues continue to hinder significant production capacity increases. This means that even if demand surges, meeting it through increased production may prove challenging.
Overall, Wells Fargo’s analysis suggests that higher costs, supply limitations, and a recovering global economy are aligning to create tighter market conditions and potentially elevated oil prices in the near future.
In conclusion, investors and consumers should be prepared for potential increases in oil prices in 2025 due to a combination of supply constraints, rising costs, and improving economic conditions. It is advisable to monitor market developments closely and adjust financial strategies accordingly to navigate the changing landscape of the oil market.