The OPEC+ alliance, comprised of major oil-producing nations, recently announced a postponement of planned oil production increases. This decision, made during an online meeting, reflects weaker global demand and rising competition from non-member countries. The delay could significantly impact oil prices, potentially keeping them stable into the next year.
Originally, OPEC+ intended to gradually restore 2.2 million barrels per day of production throughout 2025, starting on January 1st. This plan has now been shifted to April 1st, 2025, with the increases occurring gradually over 18 months, concluding in October 2026. This strategic move by OPEC+, which includes Saudi Arabia and Russia as key members, follows previous production cuts aimed at bolstering oil prices.
Several factors contribute to the current market dynamics. Weaker than anticipated demand from China, coupled with increased production from non-OPEC+ nations like Brazil and Argentina, has created a challenging environment for the alliance. These conditions have led to lower oil prices, benefiting consumers in the United States, where gasoline prices have reached their lowest point in two and a half years, hovering near $3 per gallon.
Oil analysts have responded to these market shifts by lowering their demand forecasts for the coming year, suggesting that OPEC+ may face continued challenges well into 2025. This presents a complex dilemma for member countries like Saudi Arabia and Russia, which rely heavily on oil revenue for economic development and state finances, respectively.
Saudi Arabia needs substantial oil income to fund Crown Prince Mohammed Bin Salman’s ambitious economic diversification projects, including the construction of Neom, a futuristic mega-city estimated to cost $500 billion. For Russia, oil export revenues remain crucial for funding its ongoing war in Ukraine.
The decision to hold back production carries the risk of losing market share to competing producers. Conversely, increasing production could further depress oil prices in an already well-supplied global market. Currently, U.S. oil prices have remained around $70 per barrel for several weeks, trading at $68.75 after the OPEC+ announcement, down from $80 in August. International benchmark Brent crude traded at $72.57 per barrel, a decrease from around $80 in July.
These lower oil prices have translated into significant savings for American drivers. The national average gasoline price has fallen to $3.03 per gallon, the lowest since May 2021 and considerably lower than the record high of $5.02 in June 2022. In 31 U.S. states, average gas prices are now below $3 a gallon.
AAA spokesman Andrew Gross emphasized the positive impact of oil prices at $70 or less on consumers, noting that crude oil accounts for approximately half the cost of a gallon of gasoline. Distribution costs and taxes constitute the remaining portion. While European motorists experience less significant price fluctuations due to higher taxes on fuel, the impact of OPEC+’s decision is felt globally.
OPEC has recently adjusted its demand growth forecast for 2025 to 1.54 million barrels per day, down from 1.85 million barrels per day in July. This revised figure represents the high end of current estimates, compared to projections from the International Energy Agency (990,000 barrels per day), the U.S. Energy Information Administration (1.22 million), and Rystad Energy (1.1 million). Analysts at Commerzbank anticipate Brent crude prices averaging $75 per barrel in the first quarter of next year, rising to $80 for the remaining three quarters.
Looking ahead, the potential return of Donald Trump to the White House could further influence the global oil landscape. Trump’s campaign promises of increased domestic oil production, coupled with his Treasury secretary nominee Scott Bessent’s economic plan targeting a 3 million barrel per day increase in U.S. oil output, suggest a potential shift towards greater supply. While this increased production could alleviate inflationary pressures for American consumers, the Trump team has yet to fully articulate how oil producers would be incentivized to increase supply and potentially lower prices to levels that could impact their profitability.
The Organization of the Petroleum Exporting Countries (OPEC), founded in 1960 by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela, now includes 12 member countries. The OPEC+ alliance, formed in 2016 in response to falling oil prices driven by U.S. shale oil production, expanded the organization’s reach and influence on the global oil market. This recent decision by OPEC+ underscores the complex interplay of factors affecting global oil supply, demand, and pricing, with significant implications for consumers and economies worldwide.
