Where do oil prices go from here?

[dan_s]

My take is "probably sideways" in the $55 to $60 range for awhile until the reality of how tight the global oil market really is sinks. Lower gasoline and diesel prices will increase demand and demand for transportation fuels always goes up in June.

Notes below are from a highly respected energy sector research firm.

Oil prices fell by $5 per barrel last week in anticipation of the OPEC+ production policy meeting set for Saturday May 3. Oil prices then fell by another $2 per barrel in the Sunday night session after OPEC+ announced it will restore 411 thousand b/d of voluntarily idled crude oil production starting June 1. This pledge follows an identical volume announced for May 1. The naïve view is to see these barrels as +822 thousand b/d of additive supply—more oil, lower price. What’s really happening is far more transformative: substitution.

The new coming OPEC+ supplies are not extra barrels. They are not an additive supply burden in the oil market we’ve been living in for the past decade and watch on our screens every day. The now coming OPEC+ supplies are cheaper-to-produce barrels replacing higher cost capex (mostly U.S. shale) that would otherwise fill the same depletion gaps…but now will not. This dynamic is substitution, not surplus. The upshot is the shift in OPEC+ behavior is forcing a break into a new oil price regime, one that will evolve differently than if OPEC+ had made the same steps two years ago. In this new oil price regime, crude oil price charts from the 2015-2025 block will now prove to be less reliable as this rewiring resets the boundary conditions for clearing investment hurdles and responding to supply and demand shocks.

A few implications are already clear:
(1) U.S. crude and condensate production will likely be at least 500 thousand b/d lower than previously expected, as permanent exits are imposed in the U.S. shale patch and mineral rights flow to new owners who will sit on them,
(2) U.S. associated natural gas output will likely be at least 2.5 Bcf/d lower than previously expected,
(3) U.S. NGL production will likely slump sharply too, reducing volumes for U.S. midstream and creating ethane supply security risks for China and other Asian buyers,
(4) cost-push effects likely lower consumer prices for transportation fuels (gasoline, diesel, jet) and construction materials (asphalt, roofing materials) but likely widen oil cracks and oil refining margins to the benefit of petroleum refiners, given the already extraordinary cheapness of some product prices in real terms relative to consumer wallet (e.g., inflation-adjusted, gasoline is at a 67+ year low relative to disposable personal income, excluding pandemic year 2020),
(5) lost natural gas supply likely propels large increases in U.S. natural gas cash prices (>$5.25) that then transmit through wholesale and retail channels in gas-intensive sectors (electricity, fertilizers, petrochemicals, and residential and commercial cooling and heating),
(6) OPEC spare capacity will fall below 4 million b/d in 2Q2025 for the first time since June 2023, making the global oil balance and global economy more vulnerable to energy shocks,
(7) exit of marginal U.S. oil production cedes at least 4 percent of U.S. crude and condensate production (and a non-trivial quantum of soft power) to OPEC+, primarily Saudi Arabia, Russia, Iran, Iraq, UAE, and Kazakhstan, and
(8) in a world with substantially smaller spare oil production capacity and current oil production more dependent on less reliable suppliers, oil prices become far more volatile—the risk of oil price spikes is significantly higher in this regime. < MY TAKE: Lower oil prices in the short-term means higher oil prices in 2026. Very good news for the North American Gassers in 2H 2025.