As of late May 2025, crude oil prices have stabilized around $64 per barrel, with Brent futures closing at $64.34 and West Texas Intermediate (WTI) at $61.13. This marks a sharp decline from the 2024 average of more than Rs.81 per barrel. The downturn reflects a mix of sluggish global economic growth, strong non-OPEC production, and rising uncertainty over the next move from the OPEC Plus alliance. The World Bank now projects an average crude oil price of Rs.66 per barrel for 2025, indicating a cautious outlook shaped by both current conditions and future expectations.
Global oil demand is showing signs of fatigue. The International Energy Agency has scaled down its 2025 demand growth estimate to just 730,000 barrels per day, a stark drop from 2.3 million barrels per day in 2023. Meanwhile, supply from non-OPEC countries continues to grow. The United States, in particular, has ramped up production, reaching a record 13.4 million barrels per day in May, nearly 400,000 barrels higher than a year earlier. Brazil also contributes to the supply glut, undermining OPEC+’s efforts to support prices through coordinated cuts.
OPEC Plus Faces Internal Rifts
The OPEC Plus group, which includes the Organization of the Petroleum Exporting Countries and key partners like Russia, struggles to maintain unity as it heads into a critical meeting scheduled for May 31. Since early 2024, the group has implemented multiple rounds of output cuts totaling 5.3 million barrels per day. These include a 2.00 million bpd cut from all 22 members, an additional 1.65 million bpd cut by eight key producers, and a further 2.20 million bpd voluntary cut by the same eight nations.
However, internal pressures are mounting. Countries like Iraq and the United Arab Emirates are pushing to relax production limits to shore up their economies, while major producers like Saudi Arabia and Russia are urging caution to avoid another sharp price drop. Most OPEC Plus members need prices between Rs.70 and Rs.85 per barrel to balance their budgets, which makes the current price level unsustainable for many.
Currency Market Reaction
The recent swings in oil prices have also impacted global currency markets. The British pound has weakened against the US dollar amid concerns about energy-driven inflation and slowing European growth. A lower oil price typically supports oil-importing nations but can weigh on the currencies of oil exporters. Emerging market currencies heavily reliant on oil exports have seen modest depreciation, while the US dollar has remained resilient due to strong domestic output and firm Federal Reserve policy.
Following recent fluctuations in crude oil prices and ongoing uncertainty surrounding OPEC Plus decisions, the pound to dollar exchange rate has experienced some volatility. In May 2025, the pound initially hovered near 1.28 against the dollar but later strengthened to around 1.3516 by June 3, despite a minor decline of 0.09% in the past 24 hours.
This movement reflects investor sensitivity to economic signals from the UK and the US, including concerns about the UK’s economic outlook and expectations of continued US interest rate hikes. Analysts note that if oil prices stay low and the Federal Reserve maintains a hawkish policy, the pound may face downward pressure. However, a rise in oil prices or stabilization in European demand could support the pound’s recovery.
What Lies Ahead
Oil prices’ immediate direction depends on the outcome of the upcoming OPEC+ meeting. If the group agrees to a cautious phased increase, production prices may remain near current levels or drift slightly lower, especially if non-OPEC supply keeps rising. On the other hand, if deeper production cuts are maintained or extended, a modest price rebound is possible, particularly as summer travel boosts seasonal demand.
Geopolitical tensions remain a key variable. Despite ongoing US sanctions, Iran’s oil exports have remained steady at around 1.4 million barrels per day. Any escalation in Middle East unrest could disrupt supply chains and increase prices. Meanwhile, the US Federal Reserve’s stance to keep interest rates elevated through 2025 may constrain global economic momentum and limit demand growth.
Longer Term Headwinds
Looking ahead, the structural outlook for oil remains mixed. The global push toward renewable energy is accelerating, with investment in green technologies expected to surpass Rs.2 trillion in 2025. Improvements in energy efficiency and shifts in consumption patterns are likely to cap long-term demand growth and place a ceiling on prices.
In summary, crude oil’s current stability near Rs.64 per barrel masks deeper tensions in the global energy market. OPEC+’s upcoming decisions, the pace of economic recovery, and evolving geopolitical developments will determine whether prices hold steady, rebound, or slide further as the year unfolds. For now, uncertainty dominates, and global markets remain firmly focused on the outcomes of the upcoming policy moves.
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