• OPEC+ faces a major oil oversupply in 2025, challenging production increases.
• The coalition has tried to boost oil prices by holding back output.
• Instead, members are ceding control to non-OPEC producers, such as the US.

OPEC's position in the oil market is slipping, and next year's massive supply glut will likely further loosen the cartel's grip.

According to the International Energy Agency, OPEC+ faces a sizable supply overhang, regardless of how long it holds back on increasing production. At the same time, non-member countries continue to pump crude at a record pace.

Since mid-2023, OPEC+ economies have voluntarily reduced crude outflows to boost global prices.

It hasn't worked, given a lackluster appetite to absorb international supply, which has been accelerated by non-OPEC production. Brent crude, the international benchmark, is down over 19% since peaking in the spring.

Oversupply would rise to 1.4 million barrels per day in 2025 if OPEC+ follows through on plans to unwind quotas in April, the IEA said. Even if production cuts stay in place through all of next year, the agency expects an overhang of 950,000 barrels per day.

That puts OPEC+ in a tight spot.

Members are losing market share by postponing production increases, yet turning on the taps will put downward pressure on prices. Bank of America expects Brent crude to average $61 per barrel through 2025, indicating a 17% decline from current levels.

Higher oil pricing matters to OPEC+ countries given their heavy dependence on the energy trade to prop up their economies. In a note last week, BofA said that fiscal budget deficits were emerging across OPEC economies amid lower prices, prompting some members to break with the agreed production limits.

Meanwhile, the US and other non-OPEC producers keep pumping. Led by the US, Brazil, Guyana, Canada, and Argentina, supply from outside the OPEC+ group should rise by around 36%, Bloomberg calculated, based on IEA data.

BofA has estimated that non-OPEC countries will account for around 70% of market share in the first quarter of 2025. These countries have gradually outpaced OPEC+ since 2017, data from the bank data showed.

Only demand growth will heal OPEC, the analysts wrote.

"OPEC is stuck in a difficult situation where weakening oil fundamentals make it hard for OPEC+ to maintain higher oil prices."

The IEA expects world oil demand growth to accelerate next year, with consumption rising to 1.1 million barrels per day next year — but that's not enough to absorb the oversupply.

"While non-OECD demand growth, notably in China, has slowed markedly, emerging Asia will continue to lead gains in 2024 and 2025," the agency wrote.

Until recently, OPEC has clung to expectations that demand will recover in 2025. However, on Wednesday, the group made its deepest cut to its demand outlook this year, according to Bloomberg, and has now slashed demand projections by 27% since July.

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