Impact of OPEC+ Supply, Chinese Demand, and US Shale Producers
Wall Street Turns Bearish on Crude Oil – Wall Street investment banks are lowering their forecasts for crude prices in 2025. Goldman Sachs and Morgan Stanley predict a decline below $80 per barrel.
This pessimistic outlook comes from expected increases in global oil supplies. These include potential output increases from OPEC+ and waning demand growth in China. There are also uncertainties surrounding US shale production.
Goldman Sachs has revised its 2025 Brent oil price forecast down to $77 per barrel. Meanwhile, Morgan Stanley anticipates futures ranging from $75 to $78. Both banks project a surplus in the crude market, with prices trending lower over the next 12 months.
Analysts at Goldman Sachs believe OPEC+’s decision to reverse voluntary supply cuts may signal the cartel’s intention to “strategically discipline non-OPEC supply.” However, they caution that crude prices could fall even further in certain scenarios.
Goldman Sachs’ analysis highlights the potential impact on US shale crude producers. If OPEC+ increases supply or if the US economy enters a recession, prices could drop significantly. The bank warns that “prices could significantly undershoot in the short term.” This could happen especially if OPEC discourages US shale growth or if a recession reduces oil demand.
Historic Context and Market Dynamics
The fall in oil prices in recent months has erased year-to-date gains. This decline is driven by concerns over slowing demand growth in China and rising supplies outside OPEC+. The cartel’s plans to relax output curbs have also contributed to this situation. While OPEC+ has previously withheld barrels to support prices, their tentative plan to restore output may change that.
Morgan Stanley analysts anticipate a return to equilibrium in the crude oil market by the fourth quarter of 2024. They believe a surplus will follow in 2025. They explain that “crude oil markets remain in deficit, but are likely as tight as they will be for some time.”
Currently, Brent crude trades around $81 per barrel, averaging $83 this year. Goldman Sachs’ analysis includes scenarios that could drive prices lower. These scenarios involve flat Chinese oil demand, a 10% US tariff on imports, and OPEC fully reversing its 2.2 million barrels per day of extra cuts through September 2025.
The changing dynamics in the global oil market are closely tied to historic events and geopolitical factors. They also involve the evolving strategies of major oil producers and consumer nations.
Wall Street Turns Bearish on Crude Oil – Conclusion
Wall Street’s bearish sentiment on the crude outlook marks a significant shift from earlier predictions. This change reflects concerns over increased global supply and demand uncertainties. Investors will closely monitor the actions of OPEC+ and other key players in the oil market. They will also watch economic indicators to assess the trajectory of crude prices in the coming years.
Bloomberg
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