Several factors suggest that crude oil prices are unlikely to remain sustainably above $80 per barrel in the near future. These include increasing supply, weakening demand growth, potential shifts in OPEC+ policy, and broader economic headwinds. The impact on India, a major oil importer, could be significant, affecting inflation, economic growth, and fiscal stability.
1. Rising Oil Supply
Global oil supply is expected to increase, driven by both OPEC+ and non-OPEC+ countries. In April 2025, eight OPEC+ countries agreed to gradually increase production, reversing voluntary output cuts, with a production adjustment of 411,000 barrels per day implemented in May 2025. This increase is part of a broader plan to unwind 2.2 million barrels per day of voluntary adjustments by September 2026. While these increases are subject to adjustments based on market conditions, the overall trend indicates rising supply from OPEC+.
Non-OPEC+ countries are also contributing to increased supply. The IEA projects that non-OPEC+ producers will add 1.4 million barrels per day in 2025 and 840,000 barrels per day in 2026. Although the EIA slightly revised down its forecast for U.S. crude oil production, it still expects production to average over 13.4 million barrels per day in 2025. This increase in global oil production is expected to outpace demand growth, leading to a build-up of oil inventories. The EIA forecasts that global oil inventories will grow by an average of 0.4 million barrels per day in 2025 and accelerate to 0.8 million barrels per day in 2026, which will put downward pressure on prices.
2. Weaker Demand Growth
Several organizations have revised down their forecasts for oil demand growth in 2025, citing factors such as escalating trade tensions and weaker economic outlooks. The IEA, for instance, lowered its 2025 global demand growth forecast to 730,000 barrels per day in April 2025, and further to 720,000 barrels per day in June 2025. The EIA also forecasts that world oil consumption growth will slow, increasing by less than 1 million barrels per day in both 2025 and 2026.
The slowdown in demand growth is attributed to several factors, including weaker economic activity, particularly in Asia, and increased penetration of electric vehicles (EVs). The World Bank noted that in China, an average of 0.45 million barrels per day of oil was displaced by EVs in 2024, accounting for over 40% of new car sales.
3. Potential Shifts in OPEC+ Policy
While OPEC+ has been managing production to support prices, there are risks of weakening commitment among producers, which could add downside pressure to oil prices. The EIA noted that its forecast assumes OPEC+ will generally raise production in line with new target levels through much of 2025. However, the gradual increases may be paused or reversed subject to evolving market conditions. Some OPEC+ members have been overproducing, and the need for these countries to compensate for their overproduction adds further complexity to the supply dynamics.
4. Economic Headwinds
Broader economic factors also play a role in tempering oil prices. The World Bank projects the Brent oil price to average $64 per barrel in 2025 and $60 per barrel in 2026. Slower-than-anticipated global economic growth, potentially triggered by policy uncertainty or trade tensions, could lead to a further decline in oil prices.
Impact on India
India, which imports over 80% of its crude oil needs, is particularly vulnerable to fluctuations in global oil prices. Rising crude oil prices can have several adverse effects on the Indian economy:
To mitigate these risks, experts recommend that the Indian government reassess its energy risk strategy, diversify crude oil imports, build up strategic oil reserves, promote natural gas and renewable energy sources, and encourage the adoption of electric vehicles. While rising oil prices may benefit upstream oil companies like ONGC and Oil India, the overall impact on the Indian economy is likely to be negative if prices remain elevated for an extended period.
