Bracing for the bear: What’s next for global oil prices? Caliber.Az review

Despite the high volatility in energy prices amid global geopolitical conflicts and the economic recession of 2023, a sharp collapse in oil prices was avoided by the end of last year. Unfortunately, the results of the first quarter of this year suggest that the factors which previously held back bearish trends on oil exchanges have lost their former effectiveness. Since early April, oil prices have been steadily declining under the pressure of an escalating tariff war between the United States and China, along with other major global economies, as well as potential changes in the oil production policy of OPEC+ member states.

Forecasts regarding the key factors shaping oil demand this year remain among the most hotly debated topics. Nevertheless, as of mid-April, the current situation indicates that the global energy market in 2025 will be influenced by price-depressing conditions.

The sanctions standoff between the collective West and Russia amid the ongoing Russia-Ukraine war, the escalation of conflicts in the Middle East, and, in turn, the slowdown of economic growth in the United States, the EU, and several other developed countries in 2023–2024 have significantly impacted global oil price dynamics.

Nevertheless, despite high volatility in the energy market and declining demand, OPEC member states and the broader group of countries participating in the OPEC+ agreement managed to maintain Brent crude oil prices within a stable corridor of $75–85 per barrel through a balanced and coordinated policy approach.

In particular, thanks to the efforts of eight leading OPEC+ countries—Saudi Arabia, Russia, Iraq, the UAE, Kuwait, Kazakhstan, Algeria, and Oman—it was possible to extend the voluntary oil production cut of 2.2 million barrels per day, originally agreed upon in November 2023, through the end of 2024. Moreover, within the framework of the Declaration of Cooperation, OPEC+ countries also carried out additional voluntary production adjustments to compensate for oil overproduction recorded in the previous year.

However, the policy of the new White House administration, along with the increased production of raw materials in several non-signatory oil-producing countries and similar intentions among some OPEC+ members, has begun to erode the global balance of the commodity market that was precariously maintained over the previous two years.

Specifically, this includes the increase in oil supply from Libya, as well as Angola, which left the cartel at the end of the year before last. Production is also growing in Brazil, Canada, Norway, and several other countries. In March of this year, even an OPEC+ member—Kazakhstan—exceeded its production quota by more than 300,000 barrels per day (b/d), due to the expansion of production capacities at the Tengiz field.

In accordance with the OPEC+ mandatory agreement plan, oil production in the participating countries should not exceed 39.7 million barrels per day in 2025–2026. Furthermore, under the voluntary agreement, the eight participating countries have committed to reducing production by 2.2 million b/d.

A negative development for the market came on March 3, 2025, with the news that OPEC+ members do not plan to extend the voluntary production cuts, and by the end of the first quarter, additional volumes of oil will be gradually released onto the market. Specifically, this decision involves OPEC+ raising oil production in May of this year by 411,000 b/d, corresponding to three monthly increments of 135,000 b/d.

It is important to note that significant pressure on OPEC+ policy comes from the administration of U.S. President Donald Trump, who has moved away from the dominant "green" agenda of recent years, focusing instead on the production of traditional hydrocarbons. Notably, large volumes of American oil have been supplied to Europe over the past three years due to sanctions on Russian oil. In 2024, U.S. crude oil exports to Europe increased by 6%, reaching nearly 2 million b/d. According to the U.S. Energy Information Administration (EIA), the European Union, along with countries in Asia and Oceania, remain the main destinations for American oil exports. The new administration in Washington intends to accelerate this trend and, with the support of American oil companies, has embraced the "drill, baby, drill" slogan, betting on the expansion of shale oil production.

It is quite clear that the increase in oil production in the United States will be a significant factor putting pressure on the global market balance, diminishing the ability of OPEC+ countries to curb raw material production. After U.S. President Donald Trump announced an increase in customs tariffs, escalating the trade war with China, the EU, Canada, and several other countries, oil prices in the American market dropped by 16%.

However, this resulted in prices falling below the level needed for many producers in Texas to break even. Moreover, the critical price for many U.S. shale oil producers is $62 per barrel of American WTI crude oil. According to experts at S&P Global, a further decline in oil prices to $50 could lead to a reduction in production of more than 1 million b/d and, in effect, paralyze the entire U.S. shale sector. It is quite clear that this scenario contradicts the policy of the Trump administration, and as a result, leading industry analysts believe that the U.S. and OPEC+ may reach a certain compromise on acceptable oil prices for the current year.

So, what does this compromise look like, and within what range will global oil prices stabilize? Both the U.S. Department of Energy and the International Energy Agency (IEA) believe that the market will be slightly oversupplied this year. Specifically, the IEA has raised its forecast for global oil supplies in 2025 to 104.5 million barrels per day, which is 1.6 million b/d higher than in 2024. However, in its April report, OPEC reduced its forecast for global oil demand growth for the current year by 150,000 barrels per day, expecting an increase of 1.3 million barrels per day, bringing total demand to 105.05 million b/d.

Nevertheless, most forecasts confirm the predominance of downward trends in oil prices, which have been observed since the end of March and continuing into the current month. On April 15, the price of the June futures contract for Brent crude on the ICE Futures exchange was recorded at $65.34, whereas it had been above $76.5 per barrel in the early days of January this year. According to U.S. Department of Energy specialists, the annual average price forecast for Brent crude will decrease from $74.22 to $67.87 per barrel, linking the volatility of oil prices to market participants' reactions to the effects of increased import tariffs in the U.S.

The tightening of customs regulations on the U.S. market is leading to reduced trade with China, the EU, and other regions, which in turn is causing a drop in production among counterparties, while simultaneously collapsing global demand for oil and fuel. This trend is confirmed by the updated forecast from international rating agency Fitch Ratings, which predicts that the average price of a barrel of Brent crude will be $70 in 2025, drop to $65 in 2026–2027, and further decline to $60 by 2028. The most apocalyptic forecast has come from analysts at Goldman Sachs, who believe that in a more extreme scenario—a slowdown in global GDP growth combined with OPEC countries abandoning all production restrictions—Brent oil prices could collapse to $40 per barrel.

Overall, most forecasts suggest that oil prices this year will remain within the $65–70 per barrel range, which will generally allow oil-producing countries to avoid significant risks from declining export revenues. "Russia, Kazakhstan, and Azerbaijan, the three post-Soviet oil-producing countries, are essentially prepared and have their own scenarios in the event of a drop in oil prices due to the new tariff policy of the U.S.," says Russian energy expert Boris Martsinkevich. "Everyone is waiting to see how the tensions between the U.S. and China will end, as demand for oil depends significantly on that."

According to the expert, there are no significant issues yet for the state budgets of Russia, Kazakhstan, and Azerbaijan that could arise due to falling oil prices. Recently, the President of Kazakhstan, Kassym-Jomart Tokayev, stated that three budget options are being prepared in case oil prices drop: an optimistic scenario at a price of $78 per barrel, and another option for a potential decline in prices to $58 per barrel.

In the case of Azerbaijan, where the projected price for a barrel of oil in the 2025 state budget is set at $70, a decrease in global prices below this level undoubtedly presents certain risks. As of mid-April, the price of Azerbaijani oil, Azeri Light, has slightly increased to $67.57 per barrel. Overall, if average annual prices do not fall below $65 per barrel, it is likely that Azerbaijan will be able to navigate through the fluctuations without significant losses, though some secondary expenditures in the state budget may need to be curtailed.

However, it is also important to note that oil production in Azerbaijan has been declining due to the natural reduction in output from fields. According to the Energy Institute, over the past ten years, oil production in Azerbaijan has decreased by an average of 3.6% annually. According to the most recent data from the U.S. Energy Information Administration (EIA) regarding daily oil and condensate production forecasts for Azerbaijan in 2025–2026, the average daily oil production in the country for this year is expected to be 620,000 barrels, which is 10,000 barrels lower than previously forecasted. For the following year, the EIA forecasts a daily production level of 610,000 barrels.

Therefore, for the medium-term outlook, it is necessary to consider forecasts that predict a possible decrease in oil prices to $60 per barrel by 2028. The decline in oil production in Azerbaijan and the reduction in prices on the global oil market will undoubtedly require a serious reassessment of the structure of the state's revenue budget. To replenish foreign currency earnings and compensate for the decline in energy revenues, the government will continue to focus on expanding non-oil exports, fully demonopolizing sectors with high export potential, and developing import substitution clusters. At the same time, efforts will be made to attract foreign investments and technological know-how.