EIA: 2025 Crude-Oil Prices to Retreat After Strong Start

The U.S. Energy Information Administration (EIA) has forecasted a retreat in crude-oil prices after a strong start in 2025, driven by a combination of factors that could impact the global oil market. According to the EIA's Short-Term Energy Outlook (STEO) for January 2025, the Brent crude oil price is expected to average $74 per barrel (bbl) in 2025, which is an 8% decrease from 2024, and it is projected to drop another 11% to $66/bbl in 2026.

The EIA attributes the expected decline in crude-oil prices to several factors, including:

1. Increasing global oil production outpacing demand: The EIA forecasts that global oil production will grow by 1.8 million barrels per day (b/d) in 2025 and 1.5 million b/d in 2026, while global oil consumption growth is expected to be slower than the pre-pandemic trend. This imbalance between supply and demand puts downward pressure on prices.
2. Growth in non-OPEC+ production: The EIA expects growth in oil production during 2025 to be led by countries outside of OPEC+, increasing by 1.6 million b/d before slowing to growth of less than 900,000 b/d in 2026. This growth in non-OPEC+ production contributes to the surplus in global oil supply, which in turn puts downward pressure on prices.
3. Increasing global inventories: According to the EIA, global inventories are expected to increase by an average of 300,000 b/d in 2025 and by 700,000 b/d in 2026. Increasing inventories put further downward pressure on prices.
4. Reduced OPEC+ production cuts: The latest OPEC+ agreement, announced on November 30, included 2.2 million b/d of new voluntary cuts to its crude oil production target through March 2024. However, the EIA expects OPEC+ will produce less than its currently stated targets in 2024, which could lead to a decrease in prices.
5. Slower growth in US crude oil production: While the EIA forecasts continued increasing US crude oil production in 2025 and 2026, production growth is expected to slow in 2026 as operators reduce activity in response to low WTI prices. This slower growth in US production may contribute to the expected decline in crude-oil prices.

The EIA's forecast was completed before the US issued additional sanctions targeting Russia's oil sector on Jan. 10, which have the potential to reduce Russia's oil exports to the global market. These sanctions could further impact global oil supply and prices, adding another layer of uncertainty to the market.

In conclusion, the EIA's forecast suggests that crude-oil prices will retreat after a strong start in 2025, driven by a combination of factors that could impact the global oil market. Investors and industry participants should closely monitor these developments and adjust their strategies accordingly.