A group of OPEC+ members has made a strategic decision to extend supply cuts into the next year and adjust the pace at which they will bring supply back onto the market. While this move is expected to reduce the scale of the surplus anticipated in 2025, the market is still projected to experience a surplus. This extension in cuts has prompted us to make slight revisions higher to our forecasts.
OPEC+ Extends Additional Voluntary Supply Cuts
Yesterday, OPEC+ members announced the extension of their additional voluntary supply cuts of 2.2 million barrels per day for an additional three months. This means that the group will gradually increase supply starting in April 2025.
Moreover, the members have decided to bring back the supply at a slower pace than initially planned. Previously, they were set to bring back 2.2 million barrels per day of supply over 12 months. However, the new plan involves bringing back this supply over an 18-month period, with full supply expected to return by September 2026.
Although the market seemed somewhat underwhelmed by this extension, with ICE settling slightly lower on the day, the decision has significant implications for the oil balance in 2025.
How Does This Change the Oil Balance for 2025?
The actions taken by OPEC+ have significantly reduced the surplus expected in 2025. However, the market is still projected to be in surplus in the first half of the year, albeit at a more manageable level of around 500,000 barrels per day compared to the previous estimate of 1 million barrels per day.
During the peak demand period in the third quarter of 2025, the market is expected to be in balance before returning to a surplus of 1 million barrels per day in the final quarter of the year.
While OPEC+’s actions may provide some support to the market, the group is likely to face challenges due to increasing non-OPEC supply and sluggish demand growth, especially from China. Expectations for global demand growth in the coming year remain modest, with structural factors like the rise of new energy vehicles contributing to the slowdown.
Global Oil Market to Remain in Surplus in 2025 (million barrels per day)
Source: ING Research, IEA, EIA, OPEC
What Does it Mean for Our Price Forecasts?
The reduced surplus expectations suggest that downside risks for ICE Brent are more limited in 2025 than previously thought. Our forecast for ICE Brent has been adjusted from an average of $69 per barrel to $71 per barrel for the year. However, the market’s surplus position indicates that there is still potential for price declines, particularly in the fourth quarter of 2025. Risks to this outlook include the possibility of OPEC+ extending cuts further into 2025 and stricter enforcement of oil sanctions against Iran.
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