Oil prices have been under pressure from high interest rates, a strong dollar, and high U.S. oil production. The Organization of the Petroleum Exporting Countries and other countries in a broader OPEC+ group have been curtailing production. They could extend oil production cuts at a meeting in early December.
Oil Prices Are Under Pressure
OPEC+ is scheduled to meet in early December 2024 to set oil production targets. The meeting comes at a challenging time for oil producers, as a confluence of factors is weighing on oil prices, including high interest rates, a strong dollar, weak global manufacturing, and tepid global growth rates.
In the wake of the U.S. presidential election, crude oil prices have fallen further on expectations that a second Trump administration will usher in an era of higher U.S. oil production.
The expectation of a future increase in U.S. crude oil production is significant because U.S. production was already at a record high in 2024. Greater levels of U.S. crude oil supply could dampen prices if interest rates and the dollar do not fall, both factors of which are required to support global growth.
Oil Prices And The Central Bank Of Oil
Prestige Economics has often characterized OPEC as the central bank of oil that aims to create stability for crude prices at levels that are profitable but do not make oil prices so high as to significantly incentivize alternative forms of energy.
To mitigate downside risks to oil prices in a high interest rate and strong dollar environment, OPEC has teamed up with a number of other countries as a group known as OPEC+ to reduce oil production.
OPEC and OPEC+ started officially working together as part of a Declaration of Cooperation in December 2016, and their cooperation following the outbreak of COVID-19 was critical for supporting crude oil prices.
Voluntary OPEC and OPEC+ production cuts announced in April 2023 and November 2023 are set to be phased out. The voluntary cuts announced in April 2023 have already been extended until December 2025, while the additional cuts announced in November 2023 are set to be phased out between October 2024 and September 2025.
If OPEC+ seeks to curtail oil production in the hopes of supporting oil prices, the timeline for these oil production cuts and voluntary phase-outs could be extended further into the future.
The Future of Oil Prices In 2025 And 2026
High interest rates have been holding back global growth and supporting the dollar, which are critical factors that have been weighing on crude oil prices.
Looking ahead to 2025, Prestige Economics expects average crude oil prices to rise compared to 2024 as interest rates and the dollar likely fall. In 2026, Prestige Economics expects interest rates and the greenback to fall further, likely supporting oil prices even further.
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