Goldman Sachs reports that declining oil prices may affect non-OPEC+ production growth in the next year. A decrease of $10 per barrel when Brent crude exceeds $70 could slow non-OPEC+ output by around 0.3 million barrels per day (mb/d) over 12 months.
This effect is more pronounced when prices drop to between $50 and $70, potentially reducing growth by up to 0.65 mb/d for every $10 decline. This reflects the production economics, especially for higher-cost producers like those in U.S. shale.
Influence Of Price Levels
Price levels are influential in shaping supply dynamics outside the OPEC+ alliance, affecting future market balances. With oil prices around $80 in early 2025, any sustained decline may restrict non-OPEC+ growth, affecting market tightness and potentially establishing a price floor, especially amid resilient demand.
Moreover, Goldman Sachs points out that increasing recession risks and high spare capacity may pose medium-term risks to their oil price forecast.
These observations underline a broader theme: oil prices do not just influence corporate revenues but actively shape future production decisions. If Brent crude remains well above $70, the estimated slowdown in non-OPEC+ output sits at a modest 0.3 mb/d over the following 12 months. This is manageable. However, if prices slip into the $50-$70 range, the impact becomes notably more severe, with potential reductions reaching 0.65 mb/d per $10 drop. This is far from insignificant for a market that relies on steady supply growth to balance consumption.
This price sensitivity originates from production costs. U.S. shale, known for its relatively high break-even levels, must constantly assess whether new drilling projects remain viable. If oil prices dip too far, investment decisions will be deferred, hampering production growth. Should prices stabilise around $80 in early 2025, as suggested, the floor may hold firm. However, if they weaken further, we might see a tighter supply picture emerge, reinforcing a base level of support.
Macroeconomic Risks Ahead
Looming in the background is another issue. Rising recession risks and elevated spare capacity stand as potential hazards to current forecasts. If economic conditions deteriorate, demand could weaken at a time when production still maintains a degree of flexibility. Spare capacity, particularly within OPEC+, is high enough to act as a counterweight against any near-term supply shortfalls. If demand expectations shift downward, price projections will require reassessment.
For those assessing oil market futures, the path ahead depends on two core variables: how oil prices behave and whether macroeconomic risks materialise into actual demand weakness. Actions should reflect this balance.
