Oil prices began the week on an upswing after hitting a nearly three-year low. Analysts widely believe that negative factors are outweighing positive ones, with some predicting further declines before a potential rebound.
Morgan Stanley has lowered its Brent crude oil forecast for Q4 to $75 per barrel, down from $80. Swedish financial group SEB also sees Brent averaging $75 per barrel, but not until 2025. Analyst Bjarne Schieldrop notes that prices usually fluctuate within a $15 range around this average.
BCA Research shares a similar gloomy outlook, with strategist Roukaya Ibrahim stating that the worst may still be ahead for oil prices. She advises investors with long positions in oil to reduce their exposure, anticipating further price drops.
Despite the bearish sentiment, oil prices have risen this week, continuing an upward trend sparked by supply issues in the Gulf of Mexico. The U.S. Federal Reserve’s anticipated rate cut after a series of hikes could also temporarily boost oil prices, signaling a recovery in the U.S. economy.
However, the market is still adjusting to the reality of Chinese demand not returning to double-digit growth rates. Market analyst John Kemp points out that crude prices have dropped to levels last seen during the early days of the pandemic when vaccines were just being announced.
Commodity trading advisors (CTAs), who follow technical trends, may have contributed to the recent price drop, as has a pessimistic economic outlook. Fund manager Gary Ross suggests that the financial sector’s bearish stance on 2025 reflects a poor economic outlook.
The Economist Intelligence Unit cites U.S. elections as a source of uncertainty and a slowing U.S. growth, both of which are bearish factors. Nordea Bank notes that weak growth across major economies could lead China to ease fiscal policy and Western central banks to cut rates, which might eventually stabilize growth.
McKinsey, however, remains optimistic, noting that while growth is slow, it is still present, particularly in developing nations. China’s GDP growth in the first half of the year was a robust 5%.
Physical demand for oil is not expected to plummet, and positive news is likely to eventually reach the futures market, influencing trader behavior. Attention is also turning to potential supply disruptions and geopolitics, especially in the tense Middle East.
OPEC+ is closely watched, having planned to increase supply in October but delayed due to low prices. Meanwhile, U.S. producers are slowing production growth in response to lower prices, a gradual shift that could lead to a market deficit, as most observers focus on OPEC supply and Chinese demand.