Citi analysts believe the price of Brent crude may crash to around $60 per barrel by 2025 from the current level of around $83. According to Citi, the efforts of OPEC+ to curb production may not be sufficient to avoid a surplus in the oil market in the next 18 months. Citi goes on to suggest that investors should use the optimism in the market today to initiate bearish positions on oil to potentially profit from the expected collapse in oil prices next year. In the short term, however, consensus estimates point to strong demand for oil at a time when global economic growth is expected to revive. Supply cuts introduced by OPEC+ and geopolitical tensions that have impacted the production and transportation of oil will also keep prices elevated in the short run.
Exploring The Evidence
There are several reasons behind lackluster expectations for oil demand growth in the next decade.
First, renewable energy sources are becoming increasingly affordable, making it cost-efficient for the world to transition toward clean energy. Between 2010 and 2012, the average cost of electricity produced by solar energy fell by a staggering 89% to $0.049/kWh, bringing the costs in line with electricity generated by fossil fuels. Eventually, these cost efficiencies will force businesses, governments, and individuals to shift to clean energy, impacting the global oil demand.
Second, the exponential rise of EVs is putting a strain on oil demand globally. According to the IEA, EV sales will reach 65% of total car sales by 2030 in the net-zero emissions scenario, up from around 5% today. The growing penetration of EVs will have a direct negative impact on oil demand and prices.
The unfavorable regulatory landscape for oil-related investments will also prove to be a challenge for the oil industry, and energy businesses may decide to embrace clean energy production to avoid increased regulatory scrutiny in the coming years.
What The Industry Thinks
The International Energy Agency projects oil demand growth to decelerate through 2030 as the world embraces clean energy. According to the IEA, oil demand averaged 102 million barrels per day in 2023 and will grow modestly to 106 million barrels per day by 2030. Supply of oil, however, will grow faster to approximately 114 million barrels per day by the end of this decade, pushing downward pressure on oil prices as supply will comfortably exceed demand.
The IEA’s projections closely mirror the expectations of Citi analysts but OPEC executives beg to differ. Yesterday, OPEC Secretary General Haitham Al Ghais projected oil demand to exceed 116 million barrels per day by 2045, in complete contrast to the expectations of the IEA.
JPMorgan also has a bullish stance on oil. Christyan Malek, head of energy strategy at JPMorgan, believes the supply-demand gap for oil will be in favor of demand in the foreseeable future, which should push oil prices higher through 2025.
Amid the contrasting opinions of respected analysts and investment banks, oil prices are likely to remain volatile in the short run, creating trading opportunities.
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Seasoned markets reporter and news editor
Dilantha is a former buy-side equity analyst who now contributes to Seeking Alpha, GuruFocus, TipRanks, and ValueWalk. He is the founder of Beat Billions, a premium investment research subscription service on Seeking Alpha’s Marketplace. He has appeared on CNBC and Bloomberg to discuss stock markets and the global economy.