The outlook for crude oil prices in 2025 has dimmed according to Goldman Sachs Group and Morgan Stanley, with both banking giants lowering their price forecasts due to a spike in global supplies, potentially including those from Opec+. Goldman Sachs now predicts that global benchmark Brent will average less than $80 a barrel in 2025, with a revised forecast of $77, while Morgan Stanley sees futures ranging from $75 to $78. Both banks anticipate the crude market will be in surplus, leading to lower prices over the next 12 months.
A decision by Opec+ to reverse voluntary supply cuts may be aimed at strategically disciplining non-Opec supply, according to analysts at Goldman Sachs. However, they warn that crude prices could fall below their revised forecasts in several scenarios. Despite increasing confidence that the US Federal Reserve will cut interest rates to stimulate consumer and business spending, investors have remained bearish about petroleum prices, leading to a sell-off of oil futures and options as negative sentiment returns.
Oil prices have fallen in recent months, erasing year-to-date gains, as concerns over slowing demand growth in China and rising supplies from outside Opec+ persist. While Opec has previously withheld production to support prices, plans to relax output curbs may alter their stance. Analysts at Morgan Stanley predict a return to equilibrium in the crude oil market by the fourth quarter of 2024, with a surplus expected in 2025.
Goldman Sachs recently lowered its forecast range for Brent crude by $5 per barrel, setting a new range of $70 to $85. The bank’s analysts attribute this adjustment to surprising increases in OECD inventories, ongoing challenges in China’s demand, and a reduced fair value estimate for long-dated prices. The revised outlook also reflects slower-than-anticipated demand growth from China and better-than-expected crude oil production in the US.
Goldman Sachs explores various downside scenarios in their updated oil outlook, including the potential impact of a global recession or a pause in interest rate cuts by the US Federal Reserve. The bank expects Opec+ to begin unwinding extra voluntary cuts in production, leading to a gradual increase in crude output. Additionally, tensions between Israel and Hezbollah, as well as production disruptions in Libya, recently sparked a spike in oil prices, indicating volatility in the market.
Looking ahead, Goldman Sachs anticipates that Opec+ will gradually increase crude production, with Saudi Arabia expected to raise its output from just under 9.0 million bpd to slightly over 9.2 million bpd by December 2024. Despite potential disruptions in production from conflicts in Libya, the analysts believe that these issues will be short-lived, as both governments have incentives to resume production. Overall, the oil market is facing uncertainties due to global supply increases and demand challenges, leading to a bearish outlook for prices in 2025.
