Crude oil prices have faced sustained downward pressure in early 2025, with Brent crude hitting $71.10/bbl and WTI dropping to $68.12/bbl as of March 4 – reflecting market reactions to OPEC+ plans to phase out 2.2 million barrels per day (bpd) of production cuts starting April 2025. This strategic shift comes despite strong 97% compliance across the alliance, raising concerns about potential inventory builds as global supply outpaces demand growth projections.
The latest oil price forecast for 2025 suggests continued volatility, with Brent projected to average $74/bbl this year before declining to $66/bbl in 2026 according to EIA models. Three critical factors dominate the crude oil price prediction landscape:
- OPEC+ supply restoration: Gradual production increases through 2026
- U.S. shale output: Forecast to reach record 13.59 million bpd in 2025
- Demand uncertainty: Global consumption growth limited to 1.4 million bpd
While geopolitical risks from U.S. sanctions and Middle East tensions could create short-term price spikes, analysts anticipate bearish trends will dominate the crude oil forecast through 2026. The oil price prediction for March 2025 shows technical resistance near $73.80/bbl before potential declines below $69.35, with summer demand growth now seen as crucial for stabilizing markets against rising output from exempt OPEC members and non-OPEC+ producers.
For those tracking whether oil prices will go up, current projections indicate limited upside potential beyond temporary inventory drawdowns. The crude oil price prediction for 2030 remains clouded by energy transition pressures, though emerging market demand could provide long-term support. Energy investors should monitor OPEC+ compliance levels and U.S. production data for signs of market rebalancing in this complex oil price forecast environment.
Oil Forecast & Price Predictions – Summary
- Oil price prediction Q2 2025: OPEC+ members began gradually phasing out 2.2m b/d voluntary supply cuts starting April 2025, leading to increased global oil inventories. ING forecasts Brent crude prices to average $71/bbl in 2025, with downward pressure accelerating in later quarters.
- Oil price prediction 2025: The EIA revised its Brent crude oil price forecast downward to an average of $74/b in 2025, as robust non-OPEC+ production growth from the U.S., Canada, and Brazil offsets moderate demand increases. This follows OPEC+'s decision to unwind supply restrictions amid rising global inventories.
- Oil price prediction for the next 5 years and beyond: The EIA projects global fossil fuel demand will peak by 2030, with Brent prices potentially declining to $66/bbl by 2026 under current policies. Long-term forecasts remain divided, though accelerating energy transitions and EV adoption create sustained downward pressure beyond 2030.
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Crude Oil Forecast Q2 2025
Crude oil markets face complex pressures in early 2025, with Brent currently at $71.10/bbl and WTI at $68.12/bbl as of March 4, reflecting OPEC+ plans to unwind 2.2 million b/d of production cuts starting April. This strategic shift occurs alongside record U.S. shale output projected at 13.59 million b/d, creating fundamental imbalances that dominate the crude oil price forecast through 2026.
Three critical factors shape the 2025 oil price prediction landscape:
- Supply expansion: Non-OPEC+ production growth offsets extended OPEC+ compliance (97% as of February).
- Demand constraints: Global consumption grows just 1.4 million b/d, below pre-pandemic averages.
- Monetary policy: Persistent inflation delays Fed rate cuts until late 2025, suppressing economic activity.
While technical resistance near $73.80/bbl suggests potential short-term Brent rallies, structural oversupply from U.S. producers and OPEC+ restorations limits sustained price growth. The EIA’s crude oil forecast 2025 projects Brent averaging $74/bbl before declining to $66/bbl in 2026 as inventories accumulate at 100,000 bpd. Market resilience now hinges on summer demand absorbing surplus production, though analysts identify four bearish pressures:
- U.S. crude stocks rising 2.86 million barrels weekly
- China’s oil demand growth slowing to 0.3 million b/d
- Geopolitical risks from expanded U.S. tariffs on energy partners
- OPEC+ spare capacity exceeding 5.9 million b/d
Oil price forecasts for 2030 remain bifurcated between $66/bbl (accelerated energy transition) and $73/bbl (emerging market demand growth). Current conditions suggest limited upside beyond technical rebounds, with traders monitoring June 2025 OPEC+ compliance reviews and U.S. drilling responses to sub-$70 WTI prices.
OPEC and its influence on Oil prices
OPEC is a group of major oil-producing countries that work together to manage oil supply and influence global prices. By coordinating production levels, OPEC aims to stabilize the market, but its decisions can also lead to price swings. Here’s how OPEC might impact oil prices in the near future (2025) and longer term (2026–2030):
Short-Term (2025)
- Production cuts: If OPEC reduces oil output (as it did in 2023–2024), prices could rise in 2025 due to tighter supply. This depends on whether member countries stick to agreed limits.
- Global demand: Economic growth (or slowdowns) in 2025 will affect how much oil the world needs. If demand rises faster than OPEC’s supply, prices go up.
- Alternative energy: Faster adoption of solar/wind power or electric cars in 2025 could slightly reduce oil demand, limiting OPEC’s pricing power.
Long-Term (2026–2030)
- Energy transition: By 2030, renewable energy and electric vehicles may significantly cut oil demand. OPEC could lose influence if it doesn’t adapt (e.g., investing in solar/hydrogen).
- Geopolitics: Conflicts, sanctions, or new members joining OPEC might disrupt supply chains, causing price spikes.
- OPEC’s survival: If oil demand drops sharply, OPEC members might compete aggressively for market share, leading to price wars and cheaper oil.
In summary, OPEC’s short-term power relies on balancing supply and demand, but long-term trends like clean energy could weaken its role by 2030. Prices will likely stay volatile in 2025 but trend downward after 2026 if renewables grow rapidly.
How to Trade the Next OPEC Meeting
How US Shale and Non-OPEC Growth Shape the Oil Market
US shale oil (produced through fracking) and rising non-OPEC+ oil supplies (from countries like the U.S., Brazil, and Canada) are reshaping global oil prices and OPEC’s power. Here’s how:
Shale Oil’s Speed and Flexibility
- Rapid response to prices: Shale producers can quickly boost production when oil prices rise, unlike slower-moving OPEC. This limits OPEC’s ability to drive prices up for long.
- Cost efficiency: Improved drilling tech has lowered shale production costs, making it profitable even at lower prices (around $70–$80/barrel). This encourages steady output.
- Market stability: Shale acts as a “shock absorber” during supply disruptions. If OPEC cuts output, shale can fill some gaps, reducing price spikes.
Non-OPEC+ Supply Flood
- Growing dominance: Non-OPEC+ countries now supply ~60% of global oil. Their output is set to rise by 1.4 million barrels/day in 2025, outpacing demand growth.
- Price pressure: Extra supply from non-OPEC+ could create a global oil surplus by 2025, pushing prices down unless OPEC+ makes deeper cuts.
- Geopolitical shifts: The U.S., Brazil, and Guyana are reducing reliance on OPEC oil. This weakens OPEC’s pricing power.
Combined Impact on Prices
- Short-term (2025): Rising shale and non-OPEC+ supplies could force OPEC+ to extend production cuts to avoid a price crash. Prices may hover near $70–$80/barrel if oversupply grows.
- Long-term (2026–2030): If shale and non-OPEC+ keep expanding, OPEC+ might lose control over prices. This could lead to price wars (like in 2020) or force OPEC to accept lower market share.
- OPEC’s dilemma: Cutting output supports prices but sacrifices revenue and market share. Letting prices fall could bankrupt high-cost producers but hurt their own budgets.
In short, shale and non-OPEC+ growth are making the oil market more competitive and less predictable. While OPEC+ still matters, its power to control prices is shrinking as these new players keep pumping.
How Slowing Demand and Green Energy Could Impact Oil Prices
Here’s how weaker economic growth, delayed rate cuts, and the shift to renewables might affect oil prices in 2025 and beyond:
Short-Term (2025)
- Economic slowdown: With global oil demand growing only 1.4 million barrels/day (vs. pre-pandemic levels) and China’s growth nearly stalling, prices could stay low unless OPEC+ cuts supply dramatically.
- High interest rates: If the Fed keeps rates high until late 2025, industries and freight transport (like trucks/ships) will use less fuel, further reducing demand.
- Energy transition: While EV sales and renewables won’t crash prices immediately, investors might bet against oil futures, creating downward pressure.
Long-Term (2026–2030)
- Demand plateau: EV adoption in Europe/China and renewable energy projects could cut annual oil demand growth to 0.5–1 million barrels/day (vs. 1–2 million pre-2020).
- Emerging markets cushion: Countries like India and Southeast Asia will still need more oil for vehicles/factories, preventing a total collapse in demand.
- Stagnant prices: If global demand growth stays weak, oil might trade between $60–$80/barrel (adjusted for inflation) instead of spiking to $100+.
In short, slowing consumption and greener energy will likely keep prices lower for longer. While oil won’t disappear, its era of dramatic price surges could fade as the world gradually transitions to alternatives.
How Geopolitical Risks and OPEC Decisions Shape Oil Prices
Short-Term (2025)
Geopolitical tensions like expanded U.S. sanctions on Russian oil and a renewed “maximum pressure” campaign against Iran could cut global oil supply by 1 million barrels/day. This shortage might push Brent crude prices up to $85–$90/barrel temporarily. However, markets could stabilize if other countries (like Saudi Arabia or the U.S.) quickly pump more oil to fill the gap.
OPEC+ disagreements over balancing prices and market share create uncertainty. If the group stays united and keeps production cuts in place, prices could hold steady near $75–$80/barrel. But if members like Russia or Iraq break ranks to sell more oil, prices might drop sharply.
Falling oil inventories (currently shrinking by 2.86 million barrels/week) are supporting prices now. But if stockpiles start growing again by late 2025 (as predicted), prices could slide toward $70/barrel due to oversupply.
Long-Term (2026–2030)
Sanctions and wars may cause repeated price spikes, but their impact will fade if countries adapt. For example, Russia and Iran could find new buyers or smuggling routes, limiting long-term supply losses.
OPEC+’s 5.9 million barrels/day spare capacity hangs over markets. If the group uses this to flood the market, prices could crash below $60/barrel. But if OPEC+ keeps this capacity idle to prop up prices, it risks losing more market share to U.S. shale and renewable energy.
Inventory swings will matter less over time. If renewable energy grows fast, oil demand could stagnate, making inventory buildups normal and keeping prices low ($60–$75/barrel).
In short, geopolitical risks and OPEC+ decisions will cause wild price swings in 2025, but long-term trends like energy transition and oversupply could trap prices in a lower range after 2026.
How to Trade and Invest in Oil
Technical Oil Prices Forecast Q2 2025
Brent crude oil futures have been moving within a well-defined descending channel, as illustrated by the blue trendlines on the chart. This long-term downtrend has been characterized by a series of lower highs and lower lows, confirming sustained bearish momentum over an extended period. Price action has repeatedly attempted to break above the upper boundary of the channel but has faced strong rejection at each attempt, reinforcing the significance of this trendline as a key resistance level. Notably, each time the price has reached the upper limit, it has failed to establish higher ground, ultimately rolling over and continuing its descent.
Resistance has been clearly defined at multiple levels, with 82.00 emerging as a major psychological and technical barrier. Each time price approached this level, sellers stepped in with force, driving the market back downward. Additionally, the 75.00 – 76.34 region, which coincides with the 50-day, 100-day, and 200-day moving averages, has acted as a formidable resistance zone. Attempts to break above these moving averages have been unsuccessful, further confirming their role as dynamic resistance points that align with the broader downtrend.
On the downside, 70.00 has proven to be a critical support level, with price reacting strongly to it multiple times. The presence of several bounces from this level, highlighted in orange, suggests that buyers have consistently defended this area. Each previous test of 70.00 has resulted in a short-term rally, though these rallies have struggled to gain meaningful traction before encountering resistance again. This pattern indicates that while buyers step in at this level, their strength has not been sufficient to reverse the overarching bearish trend.
In terms of moving averages, the 50-day moving average (green line) has functioned as a short-term resistance level, rejecting price advances on multiple occasions. The 100-day moving average (blue line) has also played a role in capping upward movements, while the 200-day moving average (yellow line) serves as a longer-term trend indicator. Given that price remains firmly below all three moving averages, the broader outlook remains bearish, with sellers maintaining control over the market.
Current Market Situation
At present, Brent crude oil is once again testing the key support level at 70.00, an area that has previously triggered reversals. However, despite its historical significance, price action around this level appears weak, suggesting that sellers remain dominant. The latest candlesticks indicate a lack of strong bullish momentum, raising concerns about whether this support level will hold in the current market environment.
Technical indicators further highlight the precarious nature of the situation. The Stochastic Oscillator is currently in oversold territory, reading at 19.56, which often suggests that price could be due for a short-term bounce. Similarly, the Relative Strength Index (RSI) is at 23.92, indicating extreme oversold conditions. These signals suggest that the market is stretched to the downside and that a temporary recovery could be on the horizon. However, oversold conditions alone do not guarantee a reversal; rather, they indicate that price is extended and may be approaching a critical inflection point.
The key concern for bulls is the failure to reclaim higher levels in previous bounce attempts. Recent rallies have stalled at 75.00 – 76.34, where the moving averages converge, reinforcing this area as a powerful resistance zone. As long as price remains below these moving averages, any recovery attempts will likely be met with selling pressure. This suggests that unless a strong bullish catalyst emerges, the broader downtrend may persist, with 70.00 increasingly at risk of breaking.
Future Scenarios and Possible Outcomes
Scenario 1: Bullish Reversal from Support (bounce towards 75.00 – 76.00)
If 70.00 continues to hold as support, Brent crude could see another bounce, similar to past price reactions at this level. Given that the market is currently in oversold conditions, a short-term rally towards the 75.00 – 76.00 region is a plausible scenario. This area is significant because it aligns with the 50-day, 100-day, and 200-day moving averages, which have already rejected price multiple times. If bullish momentum is strong enough to push price beyond this zone, a further move towards 82.00 could unfold, where the descending channel’s upper resistance comes into play.
For this scenario to play out, confirmation signals are necessary. A bullish candlestick pattern, such as a hammer or an engulfing candle near the 70.00 support level, would provide early indications of a reversal. Additionally, a crossover in the Stochastic Oscillator and a rebound in RSI would further support the case for a recovery. A break above 76.00 would serve as a strong confirmation that buyers have gained control, opening the door for a move toward higher resistance levels.
Scenario 2: Breakdown Below 70.00 (bearish continuation to 68.00 – 65.00)
If 70.00 fails to hold, a decisive breakdown could accelerate selling pressure, leading to a move towards the next major support level at 68.00. This level represents a minor psychological support zone, but if selling pressure remains strong, price could extend lower towards 65.00, a stronger historical support area. Given the prevailing bearish trend, this scenario appears increasingly likely, especially if sellers manage to push price below 70.00 with strong momentum.
The key confirmation signal for this bearish scenario would be a daily candlestick closing firmly below 70.00, ideally accompanied by increased volume. Additionally, if RSI remains below 30 and does not recover, it would suggest that selling pressure remains intact. Another bearish signal to watch for is the Stochastic Oscillator failing to turn higher, which would indicate a lack of buying interest even at current low prices.
A breakdown below 70.00 would likely trigger additional stop-loss orders, amplifying selling momentum and pushing price lower. If this scenario unfolds, traders should anticipate 68.00 as an initial downside target, with 65.00 acting as a deeper support zone in case of continued weakness.
Conclusion
Brent crude oil futures are currently trading at a pivotal level, with 70.00 acting as a critical inflection point. The overall trend remains bearish, with price struggling to reclaim the key moving averages. Technical indicators suggest oversold conditions, hinting at a potential short-term bounce, but without clear confirmation, downside risks remain significant.
The next major move depends on whether 70.00 holds or breaks. A bullish scenario would see price rebounding toward 75.00 – 76.00, with a possibility of extending to 82.00 if momentum is strong. However, if sellers manage to push price below 70.00, it could lead to further declines towards 68.00 and 65.00.
For now, traders should closely monitor price action at 70.00, watch for potential bullish reversal patterns or a decisive breakdown, and use key technical signals to confirm the next move. Given the current conditions, maintaining a flexible approach and preparing for both scenarios will be essential in navigating the next phase of Brent crude’s price action.
To learn more about technical analysis as a forecasting tool visit NAGA Academy.
Oil Brands
When talking about the commodity oil traded on the financial markets, we can distinguish two types. The most popular, and also the most traded, is the US Oil, also known as WTI. The other popular variant is UK Oil, also known as Brent.
How to Trade and Invest in Oil
West Texas Intermediate (WTI)
Light sweet crude oil (WTI) is widely used in US refineries and is an important benchmark for oil prices. WTI is a light oil with a high API density and low sulfur content. This determines the density of the oil in relation to water. WTI oil is widely traded between oil companies and investors. Most trading is done through futures through CME Group. The Light Sweet Crude Oil (CL) future is one of the most traded futures worldwide.
Most of the oil of this type is stored in Cushing, an important hub for Oklahoma's oil industry. Here are large storage tanks connected to pipelines that transport the oil to all United States regions. WTI is an important feedstock for refineries in the Midwestern United States and on the coast of the Gulf of Mexico.
Brent Crude Oil
Brent oil is an important benchmark for the petroleum rate, especially in Europe, Africa, and the Middle East. Its name is derived from the Brent oil field in the North Sea. This Royal Dutch Shell oil field was once one of Britain's most productive oil fields, but most of the platforms there have since been decommissioned.
The correlation between these two futures' price development is high, and we have seen several times in recent years that Brent's price was more than $10 higher than usual. At the end of 2020, the difference was approximately $3. Such differences are caused, among other things, by supply and demand, including the costs of shipping or storing oil.
Oil Price Prediction for 2025, 2026-2030
Oil price forecasts from major institutions show a mix of near-term stability and longer-term uncertainty. For 2025-2026, analysts generally expect Brent crude to fluctuate between $65 and $80 per barrel, influenced by OPEC+ production decisions and geopolitical tensions. Goldman Sachs and ING predict mid-$70s to low-$80s ranges for 2025, anticipating temporary price spikes from supply risks before gradual declines.
Looking toward 2030, projections diverge significantly. While Fitch Ratings and the EIA foresee prices settling in the $60-$73 range due to oversupply and slower demand growth, other models suggest potential extremes. Energy consultancies warn prices could either collapse to $40 with accelerated renewable adoption or surge past $100 if emission targets stall. Common themes across forecasts include the growing impact of energy transition policies, non-OPEC+ production growth, and demand uncertainties from evolving tariff landscapes.
Here are the most important oil price predictions released or updated by some of the most influential financial institutions in the world today:
EIA’s Forecast: Steady Growth and Inventory Increases
The U.S. Energy Information Administration (EIA) forecasts Brent at $74 in 2025 and $66 in 2026, citing rising inventories and steady production growth from non-OPEC+ nations like the U.S. and Brazil. By 2030, the EIA expects prices to stabilize near $73 as demand plateaus.
Goldman Sachs' Forecast: Volatility Amid Geopolitical Risks
Goldman Sachs projects Brent crude oil prices will average $78 per barrel in 2025, peaking at $80 mid-year before declining to $73 by late 2026. Their long-term outlook highlights risks like universal tariffs, which could push prices down to $64 by 2026. In extreme geopolitical scenarios, such as supply disruptions in the Middle East, Goldman Sachs warns Brent could temporarily surge to $100 in 2025.
ING Oil Forecast: OPEC+ Supply Cuts and Market Adjustments
ING forecasts oil prices to an average of $80 in 2025. They expect OPEC+ to gradually restore production later in 2025, leading to a surplus that pressures prices lower through 2026. ING emphasizes weaker demand growth and rising non-OPEC+ output as key factors driving this trend.
Fitch Ratings' Conservative Projection: Oversupply and Declining Prices
Fitch Ratings predicts Brent will average $70 in 2025, slipping to $65 in 2026 and $60 by 2030. Their conservative outlook reflects expectations of oversupply from OPEC+ countries and slowing global consumption. Fitch also warns of potential downside risks, including aggressive tariff policies or faster-than-expected transitions to renewable energy.
Diverging Long-Term Projections: Uncertainty in Future Oil Prices
Longer-term forecasts vary widely. The EIA anticipates a gradual rise to $95 by 2050 under baseline scenarios, while energy consultancy Wood Mackenzie warns prices could collapse to $40 by 2030 if global emissions targets accelerate the shift away from fossil fuels. Algorithm-based models like Trading Economics and Wallet Investor project prices exceeding $100 by 2030, though these remain speculative compared to institutional forecasts.
Algorithm-based (AI) Oil Price Forecasts
Crude oil is expected to trade near $74.31 USD/BBL in 2025, according to the latest EIA STEO models and market inventories analysis. Current projections suggest Brent prices could briefly rise to $76/bbl in early 2025 before declining to $66/bbl by 2026 as global production outpaces demand.
Long Forecast anticipates Brent crude will stabilize at $74.31/bbl in 2025 with a gradual descent to $60-65/bbl through 2026, driven by OPEC+ supply adjustments and US shale output reaching 13.55 million bpd. WTI is forecast to average $70.31/bbl this year, maintaining a $4-6 discount to Brent.
McKinsey's 2040 equilibrium model revised long-term oil prices downward to $50-60/bbl range (pre-COVID: $65-75), citing flattened production cost curves and energy transition pressures. OPEC counters with bullish demand projections of 120mn b/d by 2050 (+17.8mn b/d from 2023), driven by non-OECD growth.
Oil Price Forecast for the Next 5 Years and Beyond (2025 – 2050)
The EIA's 2025 outlook predicts Brent averaging $74/bbl (-9% YoY) with 2026 prices falling to $66/bbl as inventories swell. This contrasts with OPEC's revised 2050 demand forecast of 120mn b/d (+23% from 2023), requiring $80-90/bbl to justify deepwater investments.
Structural shifts emerge in price drivers:
- US sanctions on Russian exports now account for 1.2mn bpd supply risk
- Energy transition pressures could cap prices at $75-85 through 2030
- OPEC+ needs to maintain 2.2mn bpd cuts through 2026 to prevent sub-$60 scenarios
McKinsey's accelerated transition model forecasts 23mn b/d of new production needed post-2030 despite demand headwinds, suggesting $60-70/bbl equilibrium through 2040.
When looking for oil-price predictions, it's important to remember that analysts' forecasts may be wrong. This is because their projections are based on a fundamental and technical study of WTI and Brent oil commodities’ historical price movements. But past performance and forecast are not reliable indicators of future results.
It is essential to do your research and always remember your decision to trade depends on your attitude to risk, your expertise in the market, the spread of your investment portfolio, and how comfortable you feel about losing money. You should never invest money that you cannot afford to lose.
How Did the Price of Crude Oil Change Over Time?
Below is a chart of Brent Crude Oil, one can clearly see the descending trendline and the well-respected 70$ price barrier.
A Recent History of Oil
At the end of April 2020 (due to the Saudi and Russia conflict - more on that later), the oil price crashed, and the May WTI future even dipped below $0. The stock markets recovered strongly during the summer, and the oil price had also found its way up again. In August, the oil price rose well above $ 40 a barrel. With that price, the largest oil companies got some air also, but it is still far from enough for most to make a profit.
At the beginning of September, the oil price had suddenly fallen hard again. Simultaneously, with the mini-crash with the US stock markets, a crude oil barrel's worth dropped by about 15% to below $37 a barrel. This brought the oil price back below $40 a barrel for the first time since July. The drop is partly because Saudi Arabia had lowered its sales prices for October and the fear that the number of COVID-19 infections will increase rapidly in several countries.
The rebound in the number of infections could thwart the global economic recovery and decrease fuel demand. With several refineries lowering tariffs again, it seems they want to prevent oil stocks from rising back to record levels. The oil price was able to recover so strongly in recent months, thanks to the OPEC+ countries' agreements regarding the reduction in production. However, due to the crisis, many countries are looking for additional income sources. Therefore, some countries are not fully complying with the agreements made. As a result, more oil flows into the market, which also has a depressing effect on oil prices.
March 9th, 2020: 30% Oil Price Crash
Monday, March 9th, can go into the history books as "Black Monday" for the oil price. Negotiations between Saudi Arabia and Russia had come to nothing.
The oil price was under pressure in previous months due to the spread of the coronavirus. The world economy was on the back burner, and as a result, the oil demand had declined considerably. By limiting oil production, the countries that are part of the oil cartel hoped to stabilize or increase the price themselves. Saudi Arabia, in particular, is strongly in favor of limiting oil production.
Saudi Arabia was now trying to force Russia in another way to join the OPEC plan. The Saudi’s were going to increase production considerably and flood the market with oil. As a result, the price of a crude oil barrel had opened more than 30% lower, the lowest price since 2016. A low oil price is disastrous for most countries. Most OPEC countries are almost entirely dependent on oil revenues.
America's shale farmers may be hit hardest. The shale revolution seems to be built more and more on quicksand, as costs remain high and the new resources that are found have a much shorter lifespan. Even with an oil price of around $60 a barrel, many of these producers were already struggling. The unrest surrounding the coronavirus also makes it difficult to raise external capital. With Saudi Arabia pushing the oil price further down, the situation seems to be untenable for many producers. Players with a fragile balance and relatively high costs are unlikely to make it. What Saudi Arabia failed to achieve in 2016 now seemed to have a good chance of success.
April 21st, 2020: WTI Goes Below Zero
In April 2020, we saw a situation in the oil markets that has never occurred before. The West Texas Intermediate Crude Oil (WTI) futures contract for May fell more than 100%. The price fell during the day and took an unprecedented dive later in the evening to $ -37.63/barrel, meaning that oil producers would indeed have to pay buyers to collect the oil.
This is mainly because the storage capacity in Cushing, Oklahoma is full. And it is precisely there that this oil is delivered. Traders and large companies who were long yesterday but ran out of storage capacity or liquidity to purchase oil were forced to close futures before expiry.
Shale Oil Influence
Oil production increased rapidly, and OPEC was not happy about this. They saw the increase in supply in the Middle East as competition. OPEC, therefore, came up with the idea of fully opening the oil taps. The production costs of shale oil were many times higher. The result was a drop in oil prices from about $110 a barrel to below $30 at the beginning of 2016. OPEC hoped to wipe out shale farmers in this way.
This strategy failed, and the OPEC countries themselves ultimately suffered considerable disadvantages from this strategy. For years they saw their income more than halved. In the meantime, the shale farmers have learned to work cheaper and more efficiently, and they are already profitable at a lower oil price. What’s typical of this form of oil extraction is that production can be increased quickly.
OPEC Influence
Demand for oil will remain stable in the coming years. But it is also apparent that there is a lot of extra supply on the market now that American oil production is rapidly increasing. Shale oil, in particular, is extracted from the ground here. The shale revolution was set in motion in 2014 by the sharp rise in oil prices. This form of oil extraction was therefore profitable, despite the high production costs. Due to the attractive market, the oil companies sprang up like mushrooms.
OPEC is trying to limit production to keep the oil price at a reasonable level. Most countries benefit from a somewhat higher, but in any case, stable, oil price. According to OPEC, the oil industry must invest more than $11,000 billion over the next 20 years. If producers don't do that, there will be a shortage. In principle, shale farmers have already invested enough in recent years to absorb a large part of these shortages.
Furthermore, OPEC states that demand continues to increase despite the emergence of electric cars and the like. OPEC writes that the massive expansion of air travel creates a greater demand for oil than the emergence of alternative energy sources can diminish.
Since the low oil price in 2016, OPEC has been trying to support the low oil price. This is done by agreeing on production restrictions with all countries that are members of OPEC. The agreements do not always go smoothly, as Iran and Iraq do not always adhere to these agreements. On the other hand, the US and other countries continue to produce more and more oil, putting oil prices under pressure for a long time.
Factors That May Affect the Price of Crude Oil
We know that oil is an indispensable raw material in the world and that it is used both as raw material and fuel to make plastics, pharmaceuticals, and many other products. Hence, the demand for oil remains strong, and these industries' health will determine most of the world's oil demand. If demand from these industries increases while production stagnates, it will lead to higher prices for this commodity. Of course, and vice versa, if these industries are in a recession, their oil demand will be lower, so demand will decline. If production remains stable or increases in this case, it will logically lead to a drop in the price of a crude oil barrel.
As you will have understood, it is mainly by analyzing the difference between supply and demand that you will determine how the price or price of crude oil will evolve.
It should also be noted that this analysis is slightly more complex today than it used to be. Until a few years ago, it was pretty easy to understand how these prices would behave. At the time, the US was the largest consumer of crude oil. On the other hand, OPEC was the main supplier to the market in terms of production. But over time and the years, this situation has become more complex and slightly more confusing. One explanation for this phenomenon is that oil drilling technologies have improved greatly and resulted in better supply. Besides, we have seen the emergence of alternative solutions for this production. Finally, new players have also joined, including China, a major oil consumer in the world.
Below we have listed factors that change the supply or demand for oil and thus contribute to the evolution of this commodity's price.
1. Production data in barrels per day from OPEC countries
Too much production generally leads to lower oil prices per barrel and vice versa. US crude oil inventory data is published weekly, which also affects WTI.
2. Supply, which is published weekly on the economic calendar.
Big supply also contributes to falling prices, while little supply leads to higher prices.
3. The international geopolitical situation
Conflicts affecting the oil-producing and exporting countries often influence the development of the price per barrel.
4. The value of the US dollar on the currency market.
As a barrel of oil is denominated in dollars, this currency will be weaker, and more oil purchases will be stimulated by holders of other currencies.
Final words
Make sure to create a free demo account on NAGA.com, which is a useful platform for both novice and expert traders. You will be up to date on interesting updates about crude oil as an investment asset, and the user-friendly interface will come in handy if you decide to trade crude oil or any other commodity.
If you look at the price changes of oil for a while now, you will start to see a pattern, and as an investor, you can respond smartly to this.
If you want to invest in oil, it is a good investment to get in when the oil price is at a certain bottom. Of course, there is no guarantee that oil prices will ever rise as much as in the past. Oil is a limited resource and is probably the most precious material in the world. Investing in commodities is one way to diversify your overall investment portfolio.
Sources:
- https://www.opec.org/opec_web/en/publications/338.htm
- https://www.iea.org/reports/oil-market-report-july-2024
- https://www.eia.gov/outlooks/steo/pdf/steo_full.pdf
- https://www.fitchratings.com/research/corporate-finance/fitch-ratings-updates-oil-gas-price-assumptions-17-06-2024
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