Bank of America analysts caution that the global oil markets are entering a prolonged “slow grind” price war following OPEC+’s agreement to raise output by approximately 411,000 barrels per day (b/d) in June, translating to an effective net increase of about 170,000 b/d) after considering member constraints and overproduction.

OPEC+ Production Plan and Surplus Concerns

• Net Increment: June sees an additional 170,000 b/d supply.

• Forecast Price: Analysts anticipate Brent to average $62 per barrel in 2025, a decline from $80 in 2024.

• Downturn Projection: Prices could slump to $50 per barrel if trade and price wars converge.

Even minor supply increases amid an already saturated market are sufficient to pressure prices.

Rationale behind Saudi Arabia’s Strategy

Saudi Arabia’s recent move to amplify output aligns with its long-term priorities:

• Market Share Recovery: Regain lost share from U.S. shale and other OPEC+ members.

• Maximizing Capacity: Utilize underutilized production facilities to its full potential.

• Support Renewable Energy Transition: Lowering oil prices helps counter inflationary impacts, counterbalancing some effects of U.S. tariffs.

Analyzing Oil Price History

BofA highlights contrasts between current conditions and past oil price wars:

• 1998 Asian Financial Crisis: Drastic price drops to ~$10/bbl.

• 2014-2016 Shale Offensive: Market flooded to undermine U.S. producers.

• 2020 Crisis: Prices plummeted amid COVID-19 demand plunge.

Unlike these previously sharp episodes, the current landscape indicates a potential for prolonged margin erosion.

Price Outlook and Associated Risks

• 2026 Projections: BofA foresees Brent averaging $70 per barrel, though this is at risk if the price war prevails.

• Inflation Mitigation: Cheaper oil may alleviate some tariff-driven inflation pressures globally.

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