Investors Beware

This Sector is Poised to Get Crushed in the Next Year – Investors Beware

Oil prices could be coming down further. Experts at the U.S. Energy Information Administration (EIA) see production growth outpacing demand growth for the rest of 2025 and into 2026:

Global oil prices. We expect crude oil prices to fall over much of the forecast period. The Brent crude oil spot price averaged $68 per barrel (b) in April. In our forecast, increasing oil production outpaces annual oil demand growth, which rises by around 1.0 million barrels per day (b/d) in both 2025 and 2026, leading to the accumulation of oil inventories globally. We expect the rising inventories will result in the Brent price averaging $62/b in the second half of this year and falling to $59/b next year.

https://www.eia.gov/outlooks/steo/
The first week of May 2025, the price of crude oil closed at its lowest point since the pandemic. There are some critical pieces of information behind both the current decline and the EIA outlook

The recent fall is a combination of pressure from both sides of the market. Demand is relatively flat. Into that, the Organization of Petroleum Exporting Countries (OPEC) announced that it would ramp up production.

According to Reuters, this is a renewed attack on U.S. shale oil production. OPEC wants to grab back some market share and put a dent in U.S. production. We saw this play out in 2014:

Back then, the OPEC countries increased production, even as demand couldn’t meet existing supply. It sent the price of oil plunging from over $105 per barrel to less than $45 per barrel. That’s a 57% decline in just seven months.

That situation will replay itself in 2025. However, as we saw above, oil prices start at $60 per barrel, rather than $105 per barrel. A repeat of that decline would send oil prices down to $37 per barrel this time around.
Regardless of how far down the oil price falls, we can expect a decline. And as you can see from the chart below, the SPDR S&P Oil & Gas Exploration and Production ETF (NYSE: XOP) price trend is down.

We are inclined to believe that the trend will continue. It wouldn’t surprise us to see this ETF hit new lows if oil prices fall.

If you own oil companies in your portfolio right now, watch them closely. This sector could be in trouble. But as we know with cyclical sectors like oil, a collapse today leads to profits down the road.

For the Good,

The Mangrove Investor Team

Numbers You Need to Know

103 Million

The global demand for crude oil (including biofuels) in 2024 amounted to 103.75 million barrels per day. (Statista)

1850

The United States is the largest oil producer in the world. Crude oil has been extracted there since the 1850s and in the years since U.S. oil production has grown to over 19 million barrels per day. (Statista)

35 Percent

OPEC is responsible for more than 35 percent of worldwide crude oil production. (Satista)

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