A recent survey conducted by Haynes Boone LLC suggests that banks are bracing for a significant dip in oil prices, predicting they could fall below $60 a barrel by mid-2025. The survey, which gathered responses from 26 bankers, forecasts that West Texas Intermediate (WTI) crude will drop to $58.62 a barrel by 2027, nearly $20 lower than the current intraday price of $76.22 as of 12:00 PM ET on Wednesday.
While President-elect Donald Trump has pledged to push U.S. shale producers to increase output, even at the risk of financial strain, analysts at Standard Chartered are forecasting a continued slowdown in U.S. oil production growth. The bank predicts that the deceleration seen in 2024 will persist over the next two years.
U.S. Oil Production Growth Slows Further
Last year, U.S. oil output growth experienced a dramatic slowdown, with non-OPEC+ supply growth plummeting from 2.46 million barrels per day (mb/d) in 2023 to just 0.79 mb/d in 2024. This decline was largely driven by a sharp reduction in U.S. total liquids production, which dropped from 1.605 mb/d in 2023 to 734,000 barrels per day in 2024.
Standard Chartered expects this trend to continue. The bank forecasts U.S. liquids production will grow by just 367,000 barrels per day in 2025 and slow further to 151,000 barrels per day in 2026. While there is growth in some regions, such as Brazil, Canada, and Guyana, the overall non-OPEC supply growth is expected to remain below 1 mb/d in the coming years. This suggests there will be no significant oil glut, despite concerns among traders in 2024.
Hedge Fund Sentiment Improves
Despite the projected slowdown in U.S. production, Standard Chartered has noted an improvement in oil market sentiment, particularly among hedge funds. Their proprietary crude oil money-manager positioning index has increased for three consecutive weeks, rising by 15% week-on-week to a 24-week high of -2.1. Furthermore, their index for the ICE Brent contract is now positive, reaching a 30-week high of +6.0 after a 17.8% week-on-week increase.
This improvement in sentiment has been accompanied by a steady rise in oil prices. The front-month Brent crude contract has posted nine consecutive intraday highs, matching the longest streak since 1988.
Global Oil Demand Strengthens
After weakening in the third quarter of 2024, global oil demand appears to have strengthened in the fourth quarter. Standard Chartered reports that global demand averaged 103.291 million barrels per day (mb/d) in October, marking a year-on-year increase of 1.366 mb/d. This growth represents an acceleration from the modest 366,000 barrel per day increase seen in September. A key driver of this surge has been strong U.S. demand, which increased by 379,000 barrels per day to 21.01 mb/d. This is the highest level of U.S. demand since August 2019 and the third-highest monthly average on record.
Natural Gas Markets Show Strength
The natural gas market has also been buoyant in recent months. U.S. natural gas futures surged more than 4% to $3.60/MMBtu on Wednesday, driven by strong global demand and supply disruptions. U.S. utilities have been withdrawing natural gas from storage at a faster-than-expected pace, aided by colder-than-normal weather expected to continue through January. In the week ending January 3, U.S. utilities withdrew 40 billion cubic feet of natural gas, reducing stockpiles to 3,373 billion cubic feet (bcf). This marked the eighth consecutive week of inventory draws, in line with the typical start of the withdrawal season.
Meanwhile, Europe is also facing a decline in natural gas inventories, with stock levels depleting at the fastest rate since 2018. As of now, Europe’s storage is just over 70% full, down from 86% last year. This 25% drop in storage marks the largest decrease in seven years, as cold weather ramps up heating demand.
Samantha Dart, head of natural gas research at Goldman Sachs, warned that lower storage levels could make it difficult for Europe to replenish reserves ahead of next winter, particularly if the weather remains colder than average.
European Gas Prices Easing
Despite rising demand, European natural gas prices have been easing. On Wednesday, futures for European natural gas dipped to €46.10 per megawatt-hour, down from above €50. Prices had surged earlier due to Europe’s reliance on global liquefied natural gas (LNG) supplies to replace Russian pipeline flows, leaving the region vulnerable to price volatility. Unplanned outages, including the closure of Norway’s Hammerfest LNG plant, have added to market uncertainties.
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