OPINION
The Russian budget is under serious pressure. Oil prices plummeted in April, and OPEC countries are increasing production — casting doubt on Russia’s ability to continue spending heavily on its war in Ukraine. Analyst Mikhail Krutikhin recommends taking a view that focuses less on day-to-day military and political events and more on long-term trends: the development of green energy, the behavior of major global players China, India, and the U.S., and OPEC’s strategic response to changing circumstances. All of these factors make a drop in oil prices inevitable and spell major trouble for countries with high production costs — like Russia. By the end of the year, the OPEC+ format may cease to function as an expanded cartel, with its members ramping up production at their own discretion.
Prices are heading down
It should be noted at the outset: what interests us most is the long-term trend in oil prices, not short-term fluctuations caused by political events, military conflicts, speculative activity on financial markets, or even outbreaks of trade confrontations (unless such outbreaks escalate into a global trade war). The key factor shaping the global oil market is the fundamental balance between supply and demand. The math is simple: if more oil is being produced than the world economy consumes, the resulting surplus pushes prices down. If, on the other hand, supply lags behind demand, the resulting deficit drives prices up.
To determine the pricing trend in oil, it makes sense to take May 2022 as a starting point — when the price of Brent crude rebounded from the pandemic slump and peaked at $120 per barrel. By mid-April 2025, it was hovering at around $65. The overall trajectory is downward. Moreover, all forecasts for supply and demand in the foreseeable future agree: there is no deficit in sight, and therefore, there is no reason to expect that oil will become more expensive globally. Instead, even lower prices appear to be on the horizon.
Oil demand growth is slowing. Why?
Experts are consistently revising energy consumption forecasts downward. Even OPEC analysts — typically the most optimistic voices in the market — now expect more modest growth in demand than they did previously.
In 2025, global oil demand may rise by just 1.3 million barrels per day, down from the 1.45 million previously forecast by OPEC. For 2026, the projection has been trimmed to a rise of 1.28 million barrels per day. The Oxford Institute for Energy Studies (OIES) forecasts a demand increase of 1.1 million barrels per day this year, and only 1 million in 2026 — around 100,000 barrels less than in their earlier estimates. The latest forecast from the International Energy Agency (IEA) is also more downbeat. It expects global oil demand in 2025 to rise by just 730,000 barrels per day — 300,000 less than in its earlier forecast. The projected increase for 2026 is also modest, at just 690,000 barrels per day. Analysts at Goldman Sachs are even more pessimistic, expecting demand to grow by only 300,000 barrels per day this year.
What’s behind this growing skepticism over energy demand? Several factors are at play.
In the long term, the rapid expansion of electric vehicles in China — and soon in India, two of the world’s largest consumers of motor fuel — is a major influence. The ongoing shift to green energy and the growing use of natural gas as a substitute for oil-based fuels are also key. On top of that, greater energy efficiency across industries and households is steadily reducing overall consumption. The Chinese economy is another crucial factor. Analysts are increasingly uncertain about its growth prospects, and any slowdown would likely reduce Beijing’s oil imports.
This year, these long-term trends have been amplified by a new force: the aggressive trade policy of the U.S. administration. The trade war launched by Donald Trump has not yet triggered a global slowdown, but it has fueled deep uncertainty.
A breakdown in global supply chains and industrial cooperation could lead to a major recession — and with it, a sharp drop in energy demand. The world may end up needing far less oil than was anticipated mere months before the U.S. tariffs took effect.
A compound imbalance
As oil consumption is set to decline, production is increasing at a faster pace. According to OIES, global oil supply is expected to grow by 1.5 million barrels per day in 2025–2026. Although Oxford analysts have reduced their forecast by 200,000 barrels, this still exceeds their expectations for demand growth.
IEA predicts annual average daily production to increase by 1.2 million barrels (260,000 barrels less than in the previous forecast, due to downgraded expectations for output growth in the U.S. and Venezuela), and by 960,000 barrels in 2026. The agency also sees no signs of a supply shortfall.
Most of this production growth is expected to come from countries outside the OPEC+ alliance. OPEC experts estimate that output in those countries will grow by 910,000 barrels per day this year. They project average daily production outside OPEC+ to reach 54.1 million barrels in 2025, and 55 million in 2026 — up from 51.84 million barrels in 2023.
Guyana alone could be producing 1.2 million barrels per day by 2027. And OPEC+ member Brazil, where output is growing at 6% annually, could boost production from the current 3.3 million barrels per day to 5.5 million by 2032. The country has already made major investments in the sector, and its low operating costs allow for low production expenses and fast returns.
A dramatic shift in the amount of oil entering the market could come from a change in strategy by OPEC and OPEC+. The current operating principle of this cartel is to manipulate output volumes in order to keep prices relatively high. To this end, alliance members agreed to restrict production through coordinated quotas, and some — like Saudi Arabia — even imposed additional voluntary cuts.
In practice, however, such sacrifices have proven only partially effective. Countries not bound by quotas are quickly ramping up production, and even some cartel members are failing to strictly adhere to their commitments. As a result, prices continue to fall. Signs are emerging that by the end of the year, OPEC+ may stop functioning as a cartel, with members producing as much oil as they can and aiming to profit not from high prices, but from high sales volumes.
The result would be a market saturated with cheap oil, triggering a price war and squeezing out high-cost producers — including those in Russia.
What will oil cost?
Forecasts for the price of Brent crude continue to slide. In its April market outlook, OIES projects a 2025 price range of $63.4 to $78.9 per barrel, with an average of $71.7. By 2026, that average is expected to drop to $68.5, with a potential low of $55.4.
The U.S. Energy Information Administration (EIA) forecasts an average price of $74 per barrel this year and $68 in 2026. OIES’s own projection is slightly higher — $77 this year and $74 next. Wood Mackenzie analysts expect an average of $73, while JPMorgan is seriously considering a scenario in which prices fall to near $50. Goldman Sachs sees the average price at $63 this year and $58 next year. The bank also warns of a more extreme scenario in which Brent falls below $40 per barrel by the end of 2025 — a plunge that, in their view, would require a full OPEC+ retreat from production quotas.
Should OPEC+ countries ramp up production to their maximum capacity, global supply could far outstrip demand. While estimates of unused production potential vary, some observers put the figure at around 9 million barrels per day, while others suggest a more conservative 6 million.
Either way, those extra barrels could easily displace Russian oil on the market — and to some extent, even U.S. crude. According to the EIA, American oil production is expected to peak in 2027, followed by a gradual decline. As with Russia, the key factor is cost: if prices fall below $60 per barrel, U.S. producers could struggle to secure funding — not just for new projects but even for existing fields.
Of course, low oil prices aren't guaranteed. While long-term trends will continue to be shaped by the supply-demand balance, unexpected disruptions remain possible. A military escalation involving Iran and Western-aligned states in the Persian Gulf, for example, could damage production infrastructure and affect tanker routes in a region responsible for about 20% of the world’s oil. Conversely, if diplomatic efforts succeed in stabilizing the Middle East, prices would be even more likely to continue their downward drift.