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Goldman lowers oil price outlook amid supply spike

Banking giants now foresee global benchmark Brent averaging less than $80 a barrel in 2025

A pump jack drills oil crude from the Yates Oilfield in West Texas’s Permian Basin. — Reuters file

A pump jack drills oil crude from the Yates Oilfield in West Texas’s Permian Basin. — Reuters file

The outlook for crude next year dimmed with Goldman Sachs Group and Morgan Stanley lowering price forecasts amid a spike in global supplies, including potentially from Opec+.

The two banking giants now foresee global benchmark Brent averaging less than $80 a barrel in 2025, with Goldman’s revised forecast cut to $77, while Morgan Stanley sees futures ranging from $75 to $78. Both expect that the crude market will be in surplus, with prices trending lower over the 12 months.


A decision by the Organisation of Petroleum Exporting Countries and its allies, collectively known as Opec+, to reverse voluntary supply cuts may mean that the group is aiming at “strategically disciplining non-Opec supply”, Goldman analysts including Daan Struyven said in a note, while warning that crude prices could undershoot its revised forecasts in a number of scenarios.

Investors have remained resolutely bearish about the outlook for petroleum prices despite increasing confidence the US Federal Reserve will cut interest rates to stimulate consumer and business spending. Fund managers reverted to selling oil futures and options as the short-covering rally the week before rapidly ran out of momentum and negative sentiment returned.


Oil has fallen in recent months — temporarily losing all year-to-date gains — as investors fretted about slowing demand growth in China, rising supplies from outside Opec+, as well as the group’s plans to relax output curbs. While Opec has been willing to sacrifice market share by withholding barrels to support prices, the tentative plan to restore output may alter that stance.

“Crude oil markets remain in deficit, but are likely as tight as they will be for some time,” Morgan Stanley analysts including Martijn Rats and Charlotte Firkins said in a report. By the fourth quarter of 2024, “the balance will likely return to equilibrium, and we estimate a surplus in 2025,” they said.

Goldman’s commodities team, led by Daan Struyven, cut its forecast range for Brent crude by $5 per barrel. The move sets a new range of $70 to $85. The 2025 average Brent price forecast has also been lowered to $77 per barrel from a previous estimate of $82.

This downward adjustment reflects surprising increases in OECD (Organisation for Economic Co-operation and Development) inventories, ongoing challenges in China’s demand and a reduced fair value estimate for long-dated prices, according to the firm.

Goldman’s analysts noted that “Brent oil prices have continued to fluctuate within our prior $75-90 range this summer.” This is largely due to the market’s oscillation between fears of supply disruptions due to geopolitical risks and concerns over weakening demand, particularly in Western countries and China.

A critical factor in the revised outlook is the slower-than-anticipated demand growth from China. Goldman Sachs now expects China’s oil demand growth to slow to just 0.2 million barrels per day (bpd) in the first half of 2024, with negative year-over-year growth expected during the summer of 2024.

On the supply side, the US continues to outperform expectations. August data indicates that crude oil production in the US Lower 48 states has increased to 11.25 million barrels per day, which is 0.2 million bpd higher than Goldman’s earlier projections.

Goldman Sachs also explores more severe downside scenarios, including a moderate global recession. In such a case, if Opec responds with production cuts, Brent could see a steep decline of $30 per barrel from the baseline. Another scenario involves the US Federal Reserve pausing interest rate cuts in 2025 due to higher core inflation, driven by trade tariffs, which could cause a $19 per barrel drop from the baseline.

The bank’s updated oil outlook includes an assessment of the recent oil rally. Oil prices spiked by 3.0 per cent amid driven by tensions between Israel and Hezbollah and production disruptions in Libya.

Libya’s eastern government has signalled potential production shutdowns due to conflicts with the western government, which could reduce output by 0.6 million bpd in September and 0.2 million bpd in October, according to Goldman Sachs. Goldman Sachs analysts assume these disruptions will be short-lived, given the incentives of both governments to resume production.

Looking ahead, Goldman expects Opec+ to start unwinding the 2.2 million bpd of extra voluntary cuts that were announced earlier. Saudi Arabia, in particular, is expected to gradually increase crude production from just under 9.0 million bpd to slightly over 9.2 million bpd by December 2024


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