Oil producers face bleak future as price collapse sparks fears of oversupply
The current downturn in oil prices is turning into a bloodbath.
U.S. crude oil posted its steepest weekly decline in 11 months, reaching its lowest level since June 2023. By Friday, crude had dropped to US$67.17 per barrel, an eight percent decline. The West Texas Intermediate (WTI) October contract ended slightly higher at US$67.67 per barrel, but that still represents a 5.6 percent year-to-date fall.
Global benchmark Brent crude fared no better. The November contract closed at US$71.06 per barrel, a 2.2 percent drop for the week and a 7.8 percent decline year-to-date. This marks the worst performance for the oil markets since October of the previous year. Despite OPEC+ efforts to stabilize the market by delaying additional output until December and a seven-million-barrel reduction in U.S. crude inventories, prices continue to slide.
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This decline signals a bleak outlook for oil producers. OPEC+ had initially planned to increase production in October but has now delayed that decision until December, with no guarantee that the market conditions will permit any increase by then. Adding to the oversupply concerns, Libyan oil production, halved last week due to political unrest, is expected to resume soon. Adding to the pressure, OPEC+ members like the UAE, Iraq, and Kazakhstan are eager to raise their production levels. Meanwhile, Venezuela has seen its highest oil exports in over four years, primarily due to the Biden administration’s easing sanctions on its oil industry.
Meanwhile, production increases from the U.S., Guyana, Brazil, and Canada are also on the horizon, creating anxiety over the potential oversupply. With global oil demand already under scrutiny, experts are increasingly concerned that these additional barrels will exacerbate the market’s problems.
Major financial institutions are adjusting their forecasts to reflect this troubling outlook. Bank of America recently lowered its 2025 Brent price forecast to US$75 from US$80, while Citi predicts Brent prices will average in the US$60 range next year. Citi has also warned that prices could fall further, possibly reaching US$50 per barrel before rebounding. Goldman Sachs last week responded to this shifting outlook by cutting its average 2025 Brent forecast and price range by $5 per barrel, citing slower demand in China, the world’s largest crude importer.
What’s more, geopolitical tensions, which once drove spikes in oil prices, are no longer having the same impact. Each price rebound caused by such tensions is proving weaker than the last, according to Citi. The fundamental problem is weak demand, as Commerzbank strategist Barbara Lambrecht noted. Even production outages are having little effect on oil prices, while the expectation of increased supply is putting significant downward pressure on the market.
The consequences for Alberta and the Canadian economy are profound. Alberta will face reduced government revenues, potential job losses, and a slowdown in investment as oil prices remain low. The broader Canadian economy could see slower growth, a weakened currency, and further pressure on its energy exports.
Is a major correction looming in the oil market? It’s a possibility that can no longer be ignored.
Toronto-based Rashid Husain Syed is a highly-regarded analyst specializing in energy and politics, with a particular emphasis on the Middle East. Besides his contributions to both local and international newspapers, Rashid frequently lends his expertise as a speaker at global conferences. Organizations such as the Department of Energy in Washington and the International Energy Agency in Paris have sought his insights on global energy matters.
For interview requests, click here.
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