Oil prices are headed for a hard fall

Oil prices are dropping fast as the world pumps more than it needs – and that’s bad news for Canada

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Oil prices are on the verge of a sharp and sustained decline. Despite short-term fluctuations and a range of analyst views, the underlying market fundamentals—surging global supply and flat demand—point to one outcome: crude is going down.

Falling oil prices have ripple effects across Canada, impacting everything from jobs and government revenues to household fuel costs and weighing on the national economy as a whole. And because Alberta’s economy plays such an outsized role in Canada’s overall economic health, those effects extend far beyond its borders.

A new report from U.S. law firm Haynes Boone, based on its Spring 2025 Energy Bank Price Deck Survey, publicly released last week, shows a notable shift in sentiment. The 28 banks surveyed, the largest number to date, now expect West Texas Intermediate (WTI) crude to average just US$58.30 per barrel in 2025, a 5.8 per cent drop from the forecast issued only months earlier, according to the survey findings.

This decline isn’t simply a reaction to April’s US$10-per-barrel slump. The more significant factor is the rising output from OPEC+, a coalition of oil-producing nations led by Saudi Arabia and Russia, combined with pro-production signals from the Trump administration, including expected deregulation and expanded domestic drilling support. These supply increases are hitting the market at a time when global demand forecasts remain largely unchanged. That imbalance is creating persistent downward pressure on prices, and the banks are responding accordingly.

Forecasts from major institutions reinforce the bearish outlook. HSBC, in a projection cited by Reuters, has walked back its earlier estimate of US$65 per barrel, now warning of a larger-than-expected market surplus following the summer driving season. The bank expects regular OPEC+ production hikes starting in October, with 2.2 million barrels per day in voluntary production cuts—reductions made to support prices—fully unwound by the end of 2025.

ING analysts Warren Patterson and Ewa Manthey, quoted in Oilprice.com, expect this to happen even faster. “This would mean that the full 2.2 million bpd of supply will be brought back by the end of the third quarter of this year, 12 months ahead of schedule,” they said. “This is the key assumption behind our price forecast for ICE Brent to average US$59/barrel in the fourth quarter.” ICE Brent refers to Brent crude oil futures traded on the Intercontinental Exchange, a major global benchmark for pricing oil.

Only Goldman Sachs, according to Bloomberg, offers a more cautious view, suggesting OPEC+ may slow its pace after a final August hike. But even this position concedes that rising production is putting pressure on prices. The consensus among forecasters is growing: the global oil market is heading toward oversupply, and there’s little evidence that demand will rise to meet it any time soon.

What makes this moment more critical is the broader economic context. Central banks around the world, including the Bank of Canada, are cautiously trying to manage inflation while avoiding recession. Energy prices play a major role in both. A prolonged period of low oil prices could relieve some inflationary pressure, but it could also drag down national growth, especially in economies with strong ties to energy exports, like Canada’s.

The direction is clear: the world is producing more oil than it can consume, and there’s little on the horizon to absorb the surplus. Unless an unexpected geopolitical event disrupts global markets, crude prices are heading lower and may stay there longer than many in the industry are prepared for. Traders are already adjusting. Producers banking on a rebound may be in for a costly surprise.

For Canadian consumers, this could mean short-term relief at the pump. But for oil-dependent regions, it raises the risk of another round of fiscal restraint, job losses and broader economic strain, especially if weak oil prices persist into 2026 and beyond.

Toronto-based Rashid Husain Syed is a highly regarded analyst specializing in energy and politics, particularly in the Middle East. In addition to his contributions to local and international newspapers, Rashid frequently lends his expertise as a speaker at global conferences. Organizations such as the Department of Energy in Washington and the International Energy Agency in Paris have sought his insights on global energy matters.