US EIA forecasts lower oil prices in 2025, expects production to outpace demand

The US Energy Information Administration Jan. 9 lowered its 2024 crude price forecasts by 8 cents/b to $77.99/b for WTI and $82.49/b for Brent, and the agency expects prices to fall further in 2025 as production grows faster than demand.

In its January Short-Term Energy Outlook, the EIA forecast WTI would average $74.98/b and Brent would average $79.48/b in 2025. With crude production outpacing demand, inventories are expected to build modestly in 2025 and place some downward pressure on crude oil prices, EIA said.

But several uncertainties could still affect future oil prices, the EIA said. "Heightened tensions around the critical Red Sea shipping channel and other developments in the Middle East have added upward price pressure since early December and have the potential to disrupt global oil trade flows and drive up global oil prices further should they escalate or persist," the EIA said.

US oil production

The EIA pushed up its outlook for 2024 US oil production by 100,000 b/d to 13.21 million b/d and expects production growth to continue in 2025 with US output averaging 13.44 million b/d that year. US crude oil production set a record in 2023 and the current forecasts for 2024 and 2025 production would set records as well, according to the STEO.

"Production growth continues over the next two years driven by increases in well efficiency," according to the STEO. "However, growth slows because of fewer active drilling rigs," the EIA said.

One key uncertainty in the EIA's US production forecast is producer investment, according to the STEO. "Since 2021, producers have prioritized debt reduction, dividend increases, and corporate acquisitions over capital expenditures," the EIA said. "Producers increased capital expenditures in 2023, however, and further increases would suggest more active rigs than in our forecast," the EIA said.

Global production

Global liquid fuels production is also expected to slow down, as OPEC+ continues its policy of production restraint and US tight oil production growth decelerates, the EIA said. OPEC+ crude oil production is forecast to average 36.4 million b/d in 2024 and 37.2 million b/d in 2025, which is likely close to the lower bound for OPEC crude oil production, the EIA said in a STEO Between the Lines report released Jan. 9.

"Some OPEC+ participants may push to reduce or end their production restraint after the first quarter of 2024, in which case production may increase higher than our forecast and lead to lower prices," the EIA said in the report.

The start-up of longer-term projects in Guyana, Brazil, Norway and Canada are less sensitive to crude oil prices than US shale production, and those projects will add to non-OPEC+ production growth in the next two years, the EIA said.

"In particular, the Liza and Payara projects in Guyana's offshore oil discoveries have significantly grown crude oil production, and we expect Guyana's production will increase from 0.4 million b/d in 2023 to 0.7 million b/d in 2025."

Platts, a part of S&P Global Commodity Insights, on Jan. 8 assessed Unity Gold at a 95-cents/b discount to Dated Brent, Liza at a $1.15/b discount, and Payara Gold at a $1.10/b discount. All three grades were unchanged on the day.

Record consumption possible

The EIA increased its world liquid fuels consumption forecast by 120,000 b/d to average 102.46 million b/d in 2024. The EIA expects global liquid fuels consumption to reach a new record of 103.67 million b/d in 2025, according to the STEO.

Yet growth in 2024 and 2025 is still less than the 1.9 million b/d growth in 2023, the EIA said. "We attribute the reduction in growth to slowing oil demand growth in China due to stalling GDP growth, increasing vehicle fleet efficiency, and an end to pandemic recovery-related growth in 2023," according to the STEO.

The EIA expects US retail gasoline prices to average $3.36/gal in 2024, holding steady with December's estimate, and the agency forecasts retail gasoline prices to average $3.24/gal in 2025.

"The US average retail gasoline price declines in our forecast as gasoline inventories increase and gasoline crack spreads fall," the STEO said.

The agency lowered its expectations for US retail diesel prices, putting the fuel at $3.92/gal in 2024, down 3 cents from the prior estimate, and forecast retail diesel prices to average $3.85/gal in 2025.