Global Commodities: Making black gold dirt-cheap again

Apr 17, 2025

The podcast dives into the surprising decline of Brent oil prices, driven by investor anxiety and recession fears. It highlights the challenges facing U.S. shale producers as break-even costs come under pressure, influencing drilling budgets and production levels. Projections reveal a significant cut in crude production by 2026, impacting market stability. OPEC+ strategies to retain market share amidst these fluctuations are explored, raising questions about future pricing dynamics and interventions.

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INSIGHT

Oil Prices Hit Four-Year Low

Brent oil prices have dropped almost 21% since January 15 and hit a four-year low amid global financial turmoil.
This decline is largely due to a high likelihood of a mild recession and increased OPEC production.

INSIGHT

Lowered Oil Price Forecasts

Heightened trade policy uncertainty and changes in OPEC's response prompt J.P. Morgan to lower 2025 and 2026 Brent and WTI oil price forecasts.
The new price floor for oil is now much lower than previously anticipated.

INSIGHT

Oil Demand Downgrade and Front-Loading

Global oil demand growth for 2025 is downgraded to 0.8 million barrels per day from 1.1 million, mainly due to weaker petrochemical, diesel, and gasoline demand.
Demand for bunker fuel remains stable, and some early 2025 data shows upside surprises driven by seasonal and tariff-related front-loading.

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Heightened trade policy uncertainty and an apparent shift in OPEC’s reaction function prompt a reassessment of our outlook and price projections. Having reached our year-end price forecasts eight months early, we lower our 2025 Brent price forecast to $66 ($62 WTI), down from $73/bbl. Additionally, we adjust our 2026 targets to $58 ($54 WTI), a slight decrease from the previous $61. The price floor is now much lower. Unlike the Biden administration, which limited downside risk by guiding the refill of the US SPR when WTI prices fell below $70, the Trump administration is actively pursuing lower oil prices, with intervention unlikely unless price drops to $50. US shale producers will bear the brunt of these developments, with our projections indicating a cut of 115 rigs starting in July, leading to a contraction in US crude and condensate production in 2026. Consequently, reduced shale activity will weaken US associated natural gas supply, providing support to Henry Hub natural gas prices. While OPEC+ is poised to gain market share in 2025, stabilizing the market at $60 Brent in 2026 would require the alliance not only to reverse current production increases, but to implement further cuts.

Speaker:

Natasha Kaneva, Head of Global Commodities Research

This podcast was recorded on 17, April 2025.

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