OPEC+ has entered a "tough struggle," and if they make one wrong move, it could lead to a series of mistakes.

Rapidan Energy Group said that OPEC+ will need to carefully control oil supplies over the next five years to avoid an "oil price collapse."

The Washington-based consulting firm said in its latest long-term report that although global oil demand will not peak for at least the next 10 years, oil supplies outside of OPEC+, especially U.S. crude oil supplies, are growing much faster than previously estimated, which is a big problem for the group.

Rapidan, founded by former White House official Bob McNally, said:

"Unified, vigilant, and effective OPEC+ supply management is needed for at least the next few years to prevent a plunge in oil prices."

Despite global oil consumption reaching historical highs, Brent crude prices have fallen by 11% this year, and Brent crude prices have dropped below the important level of $75 amid a worsening economic backdrop and surging oil supplies in the U.S. and other regions. Traders continue to disregard OPEC+'s recent production cuts.

Advertisement

On Tuesday, U.S. crude oil fell below the $70 mark, falling more than 3% at one point during the day, and Brent crude fell below $75, also falling more than 3% at one point during the day.

Broker PVM Oil Associates Ltd analyst Tamas Varga said:

"Market sentiment remains negative. The fundamentals are depressing, and there is no help from the oil demand side."

In the long term, the outlook for oil seems fragile, with forecasting agencies such as the International Energy Agency predicting that oil consumption will peak in this decade as consumers shift to low-carbon energy and electric vehicles to avoid catastrophic climate change.Rapidan had correctly predicted the oil price crash in the 2020 Saudi-Russian price war, but it doubted whether the improvement in fuel efficiency and the proliferation of electric vehicles would be sufficient to curb oil demand within such a short period of time.

The consultant stated, "The popular demand peak consensus is a mirage; the failure of demand to peak by 2030 will be the next major surprise to hit the market."

Nevertheless, Rapidan added that OPEC+ will face pressure from a surge in supply from competitors in the coming years. Due to production growth in the United States and Guyana, non-OPEC countries' oil production will increase by 700,000 barrels per day by 2030, instead of the decline previously forecasted by the consulting firm.

Rapidan said that OPEC+ currently has nearly 5 million barrels per day of idle production capacity, accounting for about 5% of the world's supply, which must be "carefully" adjusted.

The report stated that after 2030, the slowdown in supply growth from non-OPEC countries will lead to a "severe" tightening of the global market, and Saudi Arabia will have the opportunity to reap huge rewards at this time. Rapidan said:

"Weak fundamentals will require OPEC+ to effectively manage supply over the next five years to maintain oil prices within the range of $80-100 per barrel. We believe OPEC+ will successfully manage the market under the tight conditions later in this decade."