Oil prices will remain above US$80/b until late 2025

What’s happened?

Based on recent data from the International Energy Agency, the global oil market fell into deficit (with demand outstripping production) in the first quarter of 2024. Due to this evolving supply-demand dynamic and rising geopolitical pressures, we revised up our oil price forecasts, with dated Brent Blend to remain above US$80/barrel until late 2025. This will lift inflationary pressures in many countries at a time when their currencies are losing ground against the dollar.

Why does it matter?

EIU forecasts oil prices will continue to trade at nearly US$90/b for at least the next few months. Besides the market deficit, higher prices will also be supported by rising tensions in the Middle East as the Israel-Hamas war threatens to widen into a broader regional conflict (not our baseline forecast).

Even if disruption to oil shipments from the region remain minimal and traders shrug off concerns about military escalation, prices are set to remain high as the global market remains in deficit until late in the year. We expect that OPEC+ will strictly observe reduced output quotas, and that Saudi Arabia will continue to adhere to additional, sharp voluntary cuts until at least mid-2024 and only slowly lift production towards the end of 2024 at the earliest.

We continue to expect US production to increase moderately in 2024 before stabilising in 2025, but the recent rise in prices is not enough to elicit a stronger supply response. The US oil rig count, at 508, is actually down by 14% from a year ago, according to Baker Hughes, an oilfield services firm, as US oil companies continue to prioritise dividends for shareholders.

The global oil market has fallen into deficit and demand will continue to outstrip supply for most of 2024. The market will remain finely balanced in 2025.

We still forecast that global oil demand will hit record highs in 2024 and 2025. Demand in developed economies will decline, although North America will remain an exception to this trend. Although the post-pandemic recovery in oil demand in China will come to an end, India will increasingly become a driver of non-OECD demand. With the US economy proving stronger than expected just a few months ago, risks to global demand forecasts are to the upside even in the face of rising prices.

EIU forecasts crude oil prices to remain above US$80/barrel until late 2025 versus a previous forecast that had prices falling below US$80/barrel by end-2024.

What next?

We forecast oil prices to average US$87.5/b in 2024 and US$80.8/b in 2025. A strengthening US dollar will exacerbate the impact of higher oil prices on inflation in many countries and increase balance-of-payments pressures, especially in developing markets. However, any perceived threats to oil shipments stemming from a further escalation of conflict in the Middle East, especially an all-out war between Iran and Israel, would easily send prices above US$100/b.

The analysis and forecasts featured in this video can be found in EIU’s Country Analysis service. This integrated solution provides unmatched global insights covering the political and economic outlook for nearly 200 countries, enabling organisations to identify prospective opportunities and potential risks.