Conflicts and geopolitical uncertainty impacted oil markets in 2024, making for an unpredictable year. The price of Brent crude oil averaged roughly $80 per barrel throughout 2024, but it fell to the low $70s at times.

This year, Goldman Sachs Research forecasts Brent will trade in a range of $70-$85 per barrel and will average about $76. Prices will be heavily influenced by the rate of production in non-OPEC countries and potentially also by geopolitical factors — from sanctions to tariffs —according to Daan Struyven, co-head of Global Commodities Research and head of Oil Research.

OPEC+ oil producers (a group formed in 2016 with original OPEC members and 10 other oil-producing countries) have high spare capacity, which may limit an increase in prices. At the same time, the price elasticities of OPEC and shale supply, which can be increased and decreased to counteract swings in energy prices, are expected to limit the risk of a significant drop in the oil price.

The team’s forecast sees the price of oil increasing moderately in the short term, before dropping back to a similar level due to producers’ high spare capacity. But energy prices are impacted by geopolitical events, which can be difficult to predict, and could cause prices to break out of the $70-85 range.

“Looking further, we expect oil demand to grow for another decade,” Struyven writes in the team’s report. Emerging market demand for energy will rise as those economies expand. And there are still challenges when it comes to decarbonizing air travel and petrochemical products.

Spare capacity could again cap oil prices next year

High spare oil capacity is likely to restrict oil prices from climbing substantially this year in spite of continued solid demand, according to Goldman Sachs Research.

In fact, the market’s expectation for a large surplus in oil production in 2025 may partially explain the decline in prices last year.

But experts disagree on the exact size of any surplus in the coming months. Some forecasters put it as high as 1.2 million barrels per day, while others predict a deficit. Goldman Sachs Research forecasts a modest surplus of 0.4 million barrels per day.

This surplus will be driven in part by an increase in production from non-OPEC nations. In total, Goldman Sachs Research forecasts that non-OPEC hydrocarbon liquids supply (excluding Russia) will increase by 1.7 million barrels per day in 2025. Most of the growth will come from four American countries: from the US in particular, but also Canada, Brazil, and Guyana.

Demand to remain resilient

Goldman Sachs Research forecasts that oil demand will grow for another decade. Energy needs from emerging markets are set to increase sharply as their GDP grows at nearly 4% a year in the second half of this decade. As income rises in emerging markets, so will demand for road and air transportation.

Efforts to decarbonize are particularly challenging when it comes to plastics and air travel. Goldman Sachs Research expects the global number of air passengers to rise by 100% by 2040. However, when it comes to road transportation, the team forecasts a steeper decline in oil consumption per vehicle, as electric vehicle sales rise, than in oil consumption per air passenger.

In fact, EV sales are expected to weigh on oil demand in the medium term. The drag on global oil demand growth resulting from EV sales currently stands at around 0.4 million barrels a day. By 2026, Goldman Sachs Research sees that figure increasing to nearly 0.6 million barrels, assuming 17 million EVs are sold in 2026 (up from 11 million EV sales last year).

The role of geopolitics in energy prices

Geopolitical events will continue to have a significant influence on the oil market next year. Although the exact nature of these events can be difficult to predict, it’s possible to model the price of crude oil in different broad scenarios.

For example, if Iranian oil supply dropped by a million barrels a day, reflecting tighter sanctions enforcement in a “maximum pressure” campaign, the price of Brent could rise to the mid-$80s per barrel by mid-2025, assuming that OPEC+ increases its supply throughout the year.

Between the US leaving the nuclear deal with Iran in May 2018 and the start of the pandemic, Iran’s liquids exports declined by 2.4 million barrels per day, with exports to OECD countries falling to zero.

Hawkish comments on Iran from some US policy nominees suggest that a substantial drop in Iran oil exports is plausible. But any drop would likely be smaller than in 2018-2019, because China now has a 90% share of Iran’s oil exports.

Another significant policy focus for oil markets is the degree of American support for Israel. If US support strengthens, it could increase the probability of disruptions to supplies of crude from Iran, which would in turn drive up global oil prices.

For example, a six-month disruption to Iranian hydrocarbon liquids that reduced exports by a million barrels per day (equivalent to half of Iran’s total daily liquids exports), could temporarily increase Brent prices to nearly $90 per barrel, according to Goldman Sachs Research. That’s assuming OPEC+ quickly increases oil supply to offset the shortfall.

On the other hand, broader-than-expected tariffs from US President Donald Trump’s administration could drive down the price of oil in the medium term. Goldman Sachs Research estimates that Brent drops to the low $60s by the end of 2026 in a scenario where the US imposes an across-the-board tariff of 10%.

Source: Goldman Sachs