The International Energy Agency (IEA) has dampened optimism about oil prices, revealing that crude oil supply currently exceeds demand by 600,000 barrels per day (bpd) and reducing its demand forecast for the year. At the same time, the world’s largest oil traders have raised concerns about growing overproduction both within and outside OPEC, signaling a more challenging market ahead.
A recent report from the Oil Price website highlighted a surge in oil production, with the U.S. Energy Information Administration forecasting an increase of 400,000 barrels per day this year, bringing total output to 13.6 million barrels per day. This rise cements the U.S. as the world’s largest oil producer and is a key factor contributing to weak oil prices.
However, OPEC+ is also increasing output, with some members significantly exceeding their quotas. According to the latest update from the organization, Kazakhstan was the biggest overproducer, averaging 1.76 million barrels per day in February, which is well above its 1.46 million bpd quota. Nigeria also surpassed its production ceiling, though to a lesser extent, exceeding its limit by approximately 70,000 barrels per day.
Meanwhile, on the demand side, concerns are growing over former President Donald Trump’s trade policies, particularly tariffs, which could dampen crude oil demand by driving up commodity prices. Some tariffs, such as the recently announced steel and aluminum duties, may also increase costs for the oil and gas industry. However, analysts suggest that the overall impact is likely to be modest.
Supply and Demand
Vitol CEO, Russell Hardy, predicts that ongoing supply and demand dynamics could drive oil prices down further, potentially ranging between $60 and $80 per barrel. He also noted that West Texas Intermediate crude might dip below $60 per barrel at some point, though he expects it to be a temporary decline.
Factually, excessive drilling has often resulted in price declines as a natural correction to overproduction, and the current situation appears to be no exception.
Meanwhile, prominent oil analyst Jeff Currie, formerly of Goldman Sachs and now with the Carlyle Group, has stated that the world has entered the era of peak oil trading. He noted that international oil trading reached its peak in 2017 and has been in decline ever since, driven by the rise of domestically produced wind and solar energy.
The share of global energy consumption from transboundary fossil fuels peaked in 2017 and has since declined by 5%, Currie wrote in a note cited by Bloomberg.
New Supplies
The U.S. Energy Secretary, Chris Wright, recently stated that the country’s Shale oil industry remains resilient and can continue increasing production even if crude prices drop to $50 per barrel.
New supplies will push prices down, Wright told the Financial Times. He said businesses will innovate, lower their prices, and consumers and suppliers will see price volatility.
However, not everyone agrees with this outlook. Liam Malone, President of Upstream at Exxon, stated at an industry event in November, that they’re not going to see anyone insist on drilling, drilling, drilling.
A radical shift in production is unlikely because the vast majority, if not all, are focused on the economics of what they are doing, Malone said at the Energy Intelligence Forum in London. He emphasized that the financial discipline exhibited by industry players in recent years has become the new normal.
Similarly, Andrew Gillick, Managing Director of Enverus, told the Financial Times earlier this month that operators were likely planning for prices above $70 a barrel this year, so at $50, rig counts are likely to decline and activity will slow. Therefore, when the Permian rig count declines the associated gas volumes that the LNG industry relies on will be lost by the end of the year.
The former CEO of Pioneer Natural Resources and energy expert Daniel Yergin, have both supported the argument that the sector’s resilience is limited. Scott Sheffield recently stated in an interview with Bloomberg that the US shale oil industry will have to “hunker down” if prices fall further and wait out the downturn.
Companies may have to lay off some employees and focus on their best opportunities. The industry will see what happens over the next two or three years, Sheffield added, predicting that prices will range between $50 and $60 per barrel.
Record Profits
Oil Price reported that the decline in oil prices is likely a key driver behind the surge in mergers and acquisitions over the past two years. This trend, coupled with record profits during the European energy crisis, has pushed companies to seek growth through acquisitions.
Moreover, with limited prime space available, firms like Exxon, Chevron, Conoco, and numerous smaller players have increased their resilience by acquiring key assets or entire competitors in the sector.
Shale Oil Economics Don’t Work
At $50 a barrel, the economics of shale simply don’t work, says Daniel Yergin, former president of Pioneer Natural Resources and an energy expert. While the breakeven price for shale has dropped significantly from $70 a barrel in 2010 to just $45 this year, according to S&P Commodity Insights, it’s important to note that this price is not uniform across all shale oil sectors. Some industry experts argue that the lower-priced resources are nearing depletion, which could affect future profitability.
Reliance on Wind and Solar Energy
Oil analyst, Jeff Currie pointed out that while oil remains a reliable source of energy; its cross-border trade is becoming increasingly vulnerable to factors such as the tariffs imposed by President Trump. He suggests that this vulnerability will likely drive a greater shift toward renewable energy sources, particularly wind and solar, as countries look to reduce dependence on oil.
Source: Al Qabas
