Welcome to our guide to the energy and commodities markets that drive the global economy. Today, Grant Smith examines the increasing pessimism surrounding oil price forecasts. To receive this newsletter directly, sign up here.
Wall Street’s outlook for global oil markets in 2025 is becoming increasingly negative.
Recently, Goldman Sachs Group Inc. and Morgan Stanley, which previously predicted oil prices would return to triple digits, have now lowered their Brent crude price forecasts for next year to below $80 per barrel.
RBC Capital Markets LLC also released a cautious analysis on Monday. Similarly, Citigroup Inc. and JPMorgan Chase & Co. have warned that oil futures might drop to around $60.
The main factor driving this negative outlook is China, the world’s largest oil importer. Critical sectors such as factory production and housing sales in China are struggling.
China’s demand for other commodities is also weakening, leading Goldman Sachs to reduce its 2025 copper forecasts.
Daan Struyven, head of oil research at Goldman Sachs, noted during a Bloomberg Television interview, “The major surprise in demand this year has been the softness in China.”
According to the International Energy Agency, global oil markets are expected to have an oversupply of more than 1 million barrels per day in the first quarter. This is due to increased production from the US, Guyana, and Brazil meeting the demand growth. This surplus could grow if the OPEC+ coalition, led by Saudi Arabia, proceeds with its plan to increase production by approximately 2 million barrels per day between October and late 2025.
OPEC+ has indicated it will move forward with the first phase of these monthly production increases, even as Brent futures hover around $77 per barrel.
Investor interest in oil has also waned, as evidenced by the tepid response to the ongoing crisis in Libya. Despite more than half of Libya’s oil output being halted due to disputes over control of the central bank, oil prices continue to decline.
This indifference may be a sign that traders have become accustomed to the unstable production in Libya. It also reflects a diminishing geopolitical risk premium. Prices have remained relatively stable throughout the year, despite conflicts between Israel and major producer Iran, which in the past might have caused oil prices to surge.
If such geopolitical tensions cannot drive up prices, it is not surprising that Wall Street’s interest in crude oil is diminishing.
In addition, China’s zinc smelters are under pressure to cut production further due to weak demand and falling processing fees. Plants in the world’s top refiner have already reduced output this year in response to financial losses. However, this has not stopped a significant drop in spot treatment fees, which are now at minus $35 per ton of imported concentrate.