Investing.com -- Bank of America analysts warned in a note this week that oil markets may be entering a new kind of price war—what they call a “slow grind”—as OPEC+ increases production into an already oversupplied market.
In June, OPEC+ moved to return another 411,000 barrels per day (b/d) to the market.
However, due to overproduction by some members and constraints on others, BofA estimates the net addition will be closer to 170,000 b/d.
Despite the modest increase, the firm believes the oil market will remain oversupplied, with Brent crude prices averaging $62 per barrel this year, down from $80 last year. In a more bearish scenario, prices could temporarily fall to $50 if “trade war and price war collide.”
So why is Saudi Arabia adding barrels? BofA points to several drivers: “The Kingdom has long stated a desire to recover its fair share of the oil market,” as its share has declined relative to the U.S. and other OPEC+ members.
BofA added that high spare capacity and a move toward renewables also make increased output economically logical.
Additionally, “lower energy prices could help offset about half of the inflation impact from tariffs on the U.S. economy.”
Looking to past OPEC price wars, BofA highlights key differences. They explain that in 1998, an internal breakdown during the Asian financial crisis pushed oil to $10.
They added that from 2014 to 2016, OPEC flooded the market to choke off U.S. shale funding. The 2020 “fast and furious” war triggered a brief collapse in prices as COVID-19 decimated demand.
Now, BofA says, “we are entering a ‘slow grind’ oil price war,” driven by long-term goals rather than immediate shocks. But the strategy has risks: “If the price war persists, our 2026 $70/bbl Brent forecast will be at risk,” the analysts warned.
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