Oil prices experienced a decline of more than 1% on Friday, solidifying weekly losses. This downturn comes as analysts predict a supply surplus in the upcoming year due to weakened demand, despite OPEC+’s recent decision to postpone output increases and extend substantial production cuts until the end of 2026.
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Brent crude futures settled at $71.12 per barrel, marking a decrease of 97 cents (1.4%). U.S. West Texas Intermediate (WTI) crude futures settled at $67.20 per barrel, reflecting a drop of $1.10 (1.6%).
Over the course of the week, Brent prices saw a decline exceeding 2.5%, while WTI prices fell by 1.2%.
Factors Contributing to the Price Decline
Several factors contributed to the downward pressure on oil prices. A notable increase in active oil and gas rigs in the United States, signaling a potential rise in production from the world’s leading crude producer, further weighed on prices.
On Thursday, the Organization of the Petroleum Exporting Countries and its allies (OPEC+) announced a three-month delay in planned oil output increases, pushing the commencement to April. Furthermore, the group extended the complete unwinding of production cuts by a year, to the end of 2026.
Bob Yawger, director of energy futures at Mizuho in New York, highlighted the impact of weak global oil demand and the anticipated increase in OPEC+ production as prices recover on market sentiment. He noted that producers are strategically waiting for more favorable pricing before significantly ramping up output.
OPEC+, responsible for roughly half of the global oil production, initially intended to begin easing cuts in October 2024. However, a slowdown in global demand, particularly from China, the largest crude importer, coupled with rising production in other regions, has necessitated multiple postponements of this plan.
Analyst Projections and Market Outlook
Analysts at HSBC Global Research observed that while OPEC+’s decision to delay output increases strengthens short-term fundamentals, it also suggests an acknowledgment of sluggish demand.
Bank of America anticipates that growing oil surpluses will lead to an average Brent price of $65 per barrel in 2025. However, the bank also projects a rebound in oil demand growth to 1 million barrels per day (bpd) next year.
HSBC, in a recent note, revised its forecast for the oil market surplus, reducing it from 0.5 million bpd to 0.2 million bpd. Brent crude has remained largely within a tight range of $70-$75 per barrel over the past month, as investors assess weak demand signals from China and elevated geopolitical risks in the Middle East.
Tamas Varga, an analyst at PVM, commented on the prevailing market sentiment, stating that while short-term developments might briefly push prices outside the current range, the medium-term outlook remains pessimistic.
Adding to the downward pressure was the recent report from Baker Hughes, an energy services firm, indicating a rise in the U.S. rig count for the first time in eight weeks. Oil rigs increased by five to 482, reaching their highest level since mid-October. Gas rigs also saw an increase of two, reaching 102, the highest since early November. Despite this week’s increase, the total rig count remains 37 (6%) lower than the same period last year.
A mixed U.S. jobs report, revealing a significant rebound in hiring but also a slight uptick in the unemployment rate, further contributed to oil’s losses.
Conclusion: Uncertainty Clouds the Oil Market
The recent dip in oil prices reflects a complex interplay of factors, including OPEC+’s strategic decisions, concerns about global demand, and rising U.S. rig counts. While short-term market fluctuations may occur, the medium-term outlook for oil prices remains uncertain, with analysts projecting a potential supply surplus and sluggish demand growth. The evolving dynamics of the global economy and geopolitical landscape will continue to exert significant influence on the oil market in the coming months.
