Wall Street banks are racing this week to slash their oil price forecasts for 2025 and 2026 after OPEC+ threw another curveball at the market this weekend by vowing to continue raising production by more than initially planned.
Commodity strategists and analysts from major U.S. and European investment banks have issued notes with downgraded oil price forecasts for 2025 and 2026 since OPEC+ producers led by Saudi Arabia and Russia agreed on Saturday to raise collective output by 411,000 barrels per day (bpd), nearly triple the volume originally scheduled.
The move follows a similar surge announced for May and signals a sharp reversal from OPEC+ efforts to defend relatively high oil prices.
Saudi Arabia Changes Tack
Saudi Arabia is signaling that it would not tolerate any longer OPEC+ producers regularly busting their quotas while others, such as the Kingdom, stick to their production ceilings per the OPEC+ agreement. Iraq and Kazakhstan have been the OPEC+ members chronically pumping above their quotas, continuously promising to “compensate for previous overproduction,” and continuously failing to do so.
So, OPEC’s top producer and leader of the OPEC+ alliance decided to make it easier for the cheaters to “compensate” and, in the meantime, increase its own production after years of trying to “stabilize the market.” Analysts also say that the Saudis are leading another OPEC+ effort to discipline the U.S. shale industry and force a slowdown in drilling activity and production growth through oil prices lower than the breakevens for new shale wells.
OPEC cited “current healthy oil market fundamentals” to explain its second decision in as many months to bundle three monthly increases into one month, which would result in more than 800,000 bpd of new supply when June ends.
The market appears anything but healthy. Demand may be picking up somewhat due to the lower oil prices, but fears of recessions and muted demand growth due to the U.S. tariff barrage and trade blitzes continue to override oil market sentiment. The small surplus expected later this year has now been revised upwards to more than 1 million bpd of glut at some banks.
Major banks moved to cut their oil price forecasts, seeing a larger-than-expected surplus and weakened oil demand growth.
Banks Take Note
In the case of Goldman Sachs, its commodity strategists slashed their oil price forecast for a third time in one month, following the announcement of another aggressive production hike from OPEC+.
Goldman’s analysts now see Brent Crude prices averaging $60 per barrel this year, down from a previous forecast of $63 a barrel. The average price of the U.S. benchmark, WTI Crude, was now downgraded at Goldman Sachs to $56 for 2025, down from $59 a barrel previously expected.
Next year, Brent is set to average $56 a barrel, down from $58, and WTI is expected at $52, down from $55 per barrel in the previous forecast from mid-April.
“Saturday’s decision increases our confidence that the new baseline size of production increases is likely 0.41mb/d,” Goldman Sachs’ strategists wrote in a note on Sunday.
“The decision likely reflects relatively low inventories and a broader shift to a more long-run equilibrium focused on supporting internal cohesion and on strategically disciplining U.S. shale supply,” the bank’s strategists said.
The Goldman team, led by the head of oil research Daan Struyven, also noted that “Our key conviction remains that high spare capacity and high recession risk skew the risks to oil prices to the downside despite relatively tight spot fundamentals.”
Morgan Stanley also cut its oil price forecasts for the remainder of the year, anticipating a bigger glut. The bank revised down its projection of Brent Crude prices to $62.50 per barrel in the third and fourth quarters of this year, down by $5 per barrel from the previous forecast.
The market glut could reach 1.1 million bpd in the second half of the year, Morgan Stanley reckons. That’s an upward revision of 400,000 bpd from the previous surplus forecast.
“We interpret OPEC+’s communication as an indication that it may unwind its production quota faster altogether,” Morgan Stanley analysts, including Martijn Rats, said in a note carried by Bloomberg.
UK bank Barclays cut its Brent forecast by $4 to $66 per barrel for this year and by $2 to $60 a barrel for next year.
ING also slashed its Brent forecast for the remainder of 2025 – from $68 to $62 per barrel. This leaves the new 2025 average forecast at $65, down from $70 a barrel previously.
“This will change if OPEC+ reverses policy once again or if lower oil prices embolden President Trump to take a more aggressive approach toward several sanctioned oil-producing countries,” said Warren Patterson, Head of Commodities strategy at ING.
“The key to knowing how far the Saudis will take what is starting to look like a price war is the nation’s tolerance for low oil prices over time,” Patterson noted.
By Tsvetana Paraskova for Oilprice.com
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