The global oil market is under increasing pressure as fears of oversupply become prominent. OPEC+, the alliance of the Organization of the Petroleum Exporting Countries (OPEC) and its allies, is set to implement planned output increases. This move raises concerns about a potential surplus in the market, leading to a pessimistic outlook for oil prices. Many investors and analysts expect declines in both the Brent crude and West Texas Intermediate (WTI) benchmarks.
In recent weeks, Brent crude and WTI have experienced significant price drops. Brent fell over 4% in one week and nearly 10% for the month. These losses are driven by fears of a global demand slowdown, an increase in short positions held by money managers in Brent futures, and expectations that OPEC+ will start increasing output.
The Role of OPEC+ in Oil Supply
OPEC+ has played a crucial role in stabilizing the oil market over the past few years, especially during the economic disruptions caused by the COVID-19 pandemic. However, its latest actions are contributing to market uncertainty. Originally, OPEC+ planned to begin unwinding its voluntary output cuts of 2.2 million barrels per day (bpd) in October 2024. After observing sharp price declines in September, the group delayed this increase by two months. This postponement was due to falling interest rates and an anticipated recovery in demand, neither of which has fully materialized.
Now, as OPEC+ prepares to implement its output hike starting in December 2024, market observers are growing increasingly anxious. The current plan involves adding 180,000 bpd to the market each month from December 2024 to November 2025. This move could worsen the delicate balance between supply and demand.
Market sentiment remains weak, with a bearish macro narrative gaining traction. Investors are responding more to negative price drivers than to positive ones, reflected in the rising number of short positions in Brent futures. According to analysts at BMI, “the sentiment in the market is heavily tilted to the downside,” and the prospect of additional supply from OPEC+ adds to these worries.
Decline in Oil Prices
Currently, Brent crude is trading around $71 per barrel, while WTI hovers near $68 per barrel. This is despite escalating conflicts in the Middle East, which have typically driven prices higher. The combination of weak demand and increasing supply creates a perfect storm for falling prices.
A telling sign of this shift is that the number of short positions held by money managers in Brent futures has, for the first time on record, surpassed the number of long positions. This indicates that many investors are betting on further price declines, reflecting growing pessimism in the market.
Compounding this negative outlook is Saudi Arabia, the world’s largest crude oil exporter and de facto leader of OPEC. Reports suggest that Saudi Arabia is prepared to abandon its unofficial oil price target of $100 per barrel. The Financial Times states that Saudi Arabia plans to increase its output, which could drive prices even lower. Following this news, oil prices dropped more than 3%.
Analysts believe Saudi Arabia’s strategic shift signals a willingness to prioritize market share over price stability. This could lead to a period of lower prices as the Kingdom increases production to maintain its dominance in the global oil market. ANZ Research predicts that Brent crude could fall to $65 per barrel in December 2024 and recover slightly to $80-$82 per barrel in the second half of 2025, as OPEC+ phases out its production cuts. ANZ warns that “any sustainability in oil prices will depend on OPEC refraining from entering an all-out war on market share.”
Market Impact of OPEC+ Decisions
If OPEC+ opts to prioritize market share, it may trigger a price collapse similar to what happened in the mid-2010s when the group targeted high-cost shale producers in the U.S. At that time, oil prices fell to around $30 per barrel. While a similar scenario is considered a worst-case outcome, FxPro analyst Alex Kuptsikevich notes that “a price drop in the $30-a-barrel region is still a very pessimistic scenario, but technically, the Brent price is testing support near $70.”
Many market analysts believe the outlook for oil prices remains bearish. BMI, for example, forecasts Brent at $81 per barrel for 2024 and $78 per barrel for 2025, but notes that the balance of risk is tilted to the downside. Meanwhile, analysts at Bernstein predict that if OPEC+ reinstates its 2.2 million bpd of supply starting in December, the market could face oversupply, leading to rising inventories and pushing Brent down to as low as $55 per barrel. Bernstein expects Brent to average around $60 per barrel in 2025.
The Future of Oil Prices: Short-Term and Long-Term Outlook
In the short term, the outlook for oil prices is heavily influenced by concerns over demand and potential oversupply. The increase in short positions in Brent futures and the pessimism regarding OPEC+’s output plans highlight a market increasingly sensitive to negative news. As BMI analysts have noted, “investors are currently far more responsive to bearish price drivers than to bullish ones.”
A potential source of market stabilization could be the upcoming OPEC+ Joint Ministerial Monitoring Committee (JMMC) meeting. While the JMMC lacks decision-making power, it plays a vital role in making policy recommendations for the OPEC+ ministerial meeting set for December 2024. According to Commerzbank Research analyst Barbara Lambrecht, the JMMC is likely to stress that the planned production hike will depend on market conditions. It may also encourage compliance with production targets and compensatory cuts, providing some hope for price stabilization.
In the long term, OPEC+’s ability to manage supply in response to market conditions will be crucial. If the group continues to increase production without considering demand, oil prices could stay under pressure for an extended period. However, if OPEC+ adopts a more cautious approach and balances supply with demand, it could help prevent a steep price collapse and restore stability to the market.
Overall, the global oil market is entering a period of uncertainty, with the potential for oversupply from OPEC+ raising fears of a price collapse. While the long-term outlook remains uncertain, short-term risks are clearly tilted to the downside. With growing investor pessimism about the market’s prospects, the coming months will be critical in shaping the future direction of oil prices. OPEC+’s ability to manage supply in response to changing market conditions will play a significant role in determining oil prices in the years ahead.
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