Crude prices expected to stay weak around $75/bbl until Feb 2025 amid low demand, higher supply

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Benchmark Brent crude oil prices are expected to hover around $75 per barrel for the next two to three months amid weak demand from the world’s largest oil importer China and potential higher supplies from the US under newly elected President Donald Trump.

Experts believe prices would remain bearish in the short term and might further collapse as the oil market witnesses rising supply from producing nations including OPEC+ (Organization of the Petroleum Exporting Countries and its allies).

India’s oil minister Hardeep Singh Puri on November 14 told reporters on the sidelines of an industry event that oil consumers such as India would have sufficient oil supply in the future as many producing countries including the US and Brazil plan to ramp up production.

On November 15, Brent was trading at around $71 per barrel, as against highs of $90 witnessed in April amid heightened geopolitical tensions in the Middle East. Brent plunged to $69 on September 10, the lowest in three years, on account of demand worries.

Factors impacting oil prices

“We don't see oil prices going up sharply from this level in the next few months; maybe between $75 and $76. We have seen some weakness in crude prices. Overall, there is a softness in global commodity prices because of a slowdown in China. Despite the stimulus, the market doesn't believe that it is very strong to really push growth in China. So, essentially, we do have a kind of a slower global economy, which is kind of impacting commodity prices, including crude oil,” said Suman Chowdhury, Chief Economist and Head of Research, Acuite Ratings & Research.

“The other thing is President Trump has been saying that he will encourage more drilling and more domestic US oil production, more shale oil production. So, a pro-fossil fuel policy on additional production in the US, which may also mean that the US may now become a bigger exporter of oil, which is also impacting the global prices right now,”  Chowdhury added.

In a hit to the oil market, OPEC on November 12 cut its global oil demand forecast for 2024 and the next year. The oil cartel said world oil demand will rise by 1.82 million barrels per day (bpd) in 2024, down from the earlier growth forecast of 1.93 million bpd, further dragging down crude prices.

“Weakening Chinese demand, impacted by factors like large-scale renewable capacity addition, burgeoning electric vehicle sales, prolonged real estate slump, vast national high-speed rail network, a substantial share of LNG and electric trucks and an ageing population – may be a drag on global oil prices. The crude oil demand growth going forward is likely to significantly trail the pre-Covid historical average annual growth rate,” said Girishkumar Kadam, Senior Vice President and Group Head, Corporate Ratings, ICRA.

ICRA said it expects crude prices to average at $60-65 per barrel in the next five years, but any adverse geopolitical developments could lead to a spike in crude prices. The operating profits of domestic upstream companies would be adversely impacted and are likely to be lower by Rs 13,000 crore for a $10/barrel decline in crude oil prices.

Geopolitical crisis

Despite sluggish demand, energy experts remain cautious of geopolitical tensions in the Middle East, which could, in turn, impact the trade routes, increasing freight charges and risk premiums.

“There is obviously the risk of war between Israel and Iran, which is the main worry. But if that happens, we'll probably expect oil prices to improve slightly from here because we also have the winter season coming and the seasonal demand typically picks up in Europe. Because of all this, there is a possibility of a slight, modest increase (in prices),” said Chowdhury.

Domestic brokerage Sharekhan expects WTI prices to test $66 in the short term and $62 levels in the medium term amid a general economic slowdown in the US, deflationary pressure and lower oil demand in China.