Introduction to the Oil Market
The oil market has been experiencing a significant amount of volatility in recent times. According to a March oil market report from the International Energy Agency (IEA), the macroeconomic conditions that underpin oil demand projections have deteriorated over the past month due to escalating trade tensions between the United States and several other countries. This has led to a downgrade in growth estimates for Q4 2024 and Q1 2025 to about 1.2 million barrels per day.
Oil Price Fluctuations
Despite the uncertain outlook, an announcement that OPEC+ would extend a 2.2 million barrel per day production cut into Q2 added some support to the market amid global growth concerns and rising output in the US. However, prices spiked at the end of March, pushing both benchmarks to within a dollar of their 2025 start values, and then plummeted by April 9. Sinking to four-year lows, Brent and WTI fell below the critical US$60 per barrel threshold, to US$58.62 (Brent) and US$55.38 (WTI), lows not seen since April 2021.
Expert Insights
Ole Hansen, head of commodity strategy at Saxo Bank, notes that if prices remain in the high US$50 range, US production will likely decrease, aiding in a broader market realignment. "Eventually we will see production start to slow in the US, probably other places as well, and that will help balance the market,” Hansen explained. He expects prices to fluctuate between US$60 to US$80 for the rest of the year.
OPEC’s Production Increase
In early April, OPEC+ announced plans for a significant increase in oil production, marking its first output hike since 2022. The group plans to add 411,000 barrels per day (bpd) to the market starting in May, effectively accelerating its previously gradual supply increase strategy. However, some analysts believe the decision is a punitive one targeted at countries like Iraq and Kazakhstan who consistently exceed production quotas.
Oil Price Forecast for 2025
Hansen’s projections fall in line with data from the US Energy Information Administration (EIA), which downgraded the US$74 Brent price forecast it set in March to US$68 in April. The EIA foresees US and global oil production to continue rising in 2025, as OPEC+ speeds up its planned output increases and US energy remains exempt from new tariffs.
Natural Gas Market
On the natural gas side, Q1 was marked by tight conditions amid rising demand. A colder-than-normal winter led to increased consumption, with US natural gas withdrawals in Q1 exceeding the five-year average. Starting the year at US$3.59 per metric million British thermal units, prices rose to a year-to-date high of US$4.51 on March 10.
Natural Gas Price Forecast for 2025
The IEA expects growth in global gas demand to slow to below 2 percent in 2025, largely driven by Asia, which is expected to account for almost 45 percent of incremental gas demand. The US-based EIA has a more optimistic outlook for the domestic gas sector, projecting the annual demand growth rate to be 4 percent for 2025.
Conclusion
In conclusion, the oil market is experiencing a significant amount of volatility due to trade tensions, production cuts, and changes in global demand. Experts expect prices to fluctuate between US$60 to US$80 for the rest of the year, with the potential for production to slow in the US and other places. The natural gas market is also expected to remain tight, with growth in global gas demand slowing to below 2 percent in 2025. As the market continues to evolve, it’s essential to stay up-to-date with the latest news and trends to make informed decisions.
