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Oil price forecasts revised lower amid volatile market

by Elif Şahinduran - esahinduran@chemorbis.com
  • 01/10/2024 (09:47)
September was marked by turbulence in the oil market, with prices initially rising due to supply concerns in Libya and tensions in the Middle East. However, a nearly 5% decline by mid-month caused Brent to drop below $70/barrel, its lowest since December 2021. Subsequent gains fueled by U.S. Tropical Storm Francine and China’s economic stimulus were short-lived, as experts expressed skepticism about future fuel demand. Consequently, many analysts revised their price forecasts downward for 2024 and 2025.

September: A month of uncertainty for oil

September was a tumultuous month for the global benchmarks due to shifting supply and demand dynamics. Concerns over production cuts in Libya and rising tensions in the Middle East initially drove prices higher, but optimism over a potential resolution in Libya and weaker global economic data led to a sharp decline of nearly 5% by September 11. Brent fell to its lowest since December 2021, dipping below $70/barrel, while WTI hit its lowest since May 2023. The market’s downturn was compounded by OPEC’s revised lower demand forecasts for 2024 and 2025.

Supply concerns from US Tropical Storm Francine, along with the Federal Reserve’s first interest rate cut since 2020, helped oil prices recover by mid-September, marking two consecutive weeks of gains. On September 24, China unveiled its most aggressive economic stimulus package since the COVID-19 pandemic, which included interest rate cuts and government funding. In response, oil prices rose by around 2%, with Brent climbing back to $75/barrel after hitting a low of $69/barrel earlier in the month.

However, this rally was short-lived as analysts questioned whether China’s stimulus would be sufficient to significantly increase fuel demand. Adding to the downward pressure were reports of OPEC potentially raising output in December and signs of progress in Libya’s oil production dispute, both of which could boost global supply. By September 30, futures had hovered around $68/barrel for WTI and $71/barrel for Brent.

Oil price outlooks cut for 2024, 2025

Recent developments in the oil market have prompted intelligence agencies, banks and financial institutions to revise their price forecasts downward for the remainder of the year and 2025.

The Energy Information Agency cut its oil price outlook for Brent and Nymex for a second month. According to the Short-Term Energy Outlook (STEO) for September, Brent oil will average at $82.20 and WTI at $78.80/bbl in 2024, down by more than $2/bbl. 2025 estimates were also revised down by $1-2/ton to $84.09/bbl for Brent and $79.63/bbl for WTI.

Morgan Stanley has also revised its Brent crude price forecast in September, now projecting $75/barrel for Q4 2024, down from last month’s estimate of $80-85/barrel. The adjustment reflects concerns over weaker demand from China and signs of a slowing US economy.

Goldman Sachs has also lowered its average Brent forecast for 2025 to $77/barrel, down from the $82/barrel projected in April. The bank also adjusted its 2025 trading range forecast for Brent to $70-$85/barrel, previously set at $75-$90/barrel. The revisions are driven by elevated OPEC inventories, weaker demand from China, and rising U.S. oil production.

Citi Research predicts that oil prices could average $60/barrel in 2025 if OPEC+ doesn’t implement deeper production cuts, pointing to weaker demand and increased non-OPEC supply.

JP Morgan forecasts Brent to average $75/barrel in 2025, with prices potentially dipping into the low $60s by year-end. The bank noted that $60/barrel oil is unfavorable for both producers and consumers, suggesting that OPEC may need to cut production by an additional 1 million barrels/day to manage the market effectively. Due to oil’s underperformance in August, JP Morgan has revised its Q4 2024 price forecast from $85/barrel to $80/barrel.

Fitch analysts projected Brent crude to average $70/barrel in 2025, falling to $65/barrel in 2026 and remaining at that level through 2027. In the medium term, Brent prices are expected to drop further to $60/barrel. For WTI crude, Fitch forecasts $75/barrel in 2024, decreasing to $65/barrel in 2025 and $60/barrel in 2026, with prices stabilizing at $57/barrel in the medium term.

Wells Fargo analysts forecast lower oil prices through 2025, citing the heightened risk of global oversupply. The bank attributed this bearish outlook to rising U.S. shale production and slowing demand from major economies, particularly China. Consequently, Wells Fargo has revised its projections, now expecting Brent crude to average $70/barrel and WTI to average $65/barrel in 2025.
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