Last week was a painful week for crude oil bulls: US oil and Brent oil both hit new lows since June 2023 last Friday, with WTI crude oil futures for October contract falling 2.14% last Friday and a total decline of 7.99% for the week, reaching a new closing low since June 2023; Brent crude oil futures for November contract fell 2.21% last Friday and a total decline of 9.82% for the week, also hitting a new low since June 2023.

The reasons for dragging down oil prices come from two aspects of supply and demand: on one hand, it seems that the crude oil supply of the United States and OPEC+ will continue to increase; on the other hand, both China and the United States seem to have difficulty in increasing their oil demand.

Looking ahead to the future of oil prices, it seems that the clouds are becoming denser. Whether it is the world's largest independent oil trader Vitol Group or the Wall Street institution Morgan Stanley, both have issued pessimistic warnings.

Chinese oil demand is expected to peak

Recently, the world's largest independent oil trader Vitol Group stated that due to China undergoing an energy transition, the amount of gasoline used in China is expected to peak, further intensifying concerns about oversupply of oil.

China, as the world's largest oil importing country, its oil demand is an important factor affecting global oil supply and demand, and is therefore closely watched by market participants.

'China's gasoline demand may reach its peak this year or next not because fewer people are driving, but because mainstream models are gradually transitioning to electric vehicles,' said Russell Hardy, CEO of Vitol Group, in an interview.

At the same time, US crude oil production is nearing record highs, while OPEC+ is brewing its production increase plans - although OPEC+ recently delayed their production increase plans by two months. In summary, Vitol Group believes that the market will be well-supplied for at least the next two years.

'People are coming to the conclusion that the next 12 months won't be an easy environment for them unless there's a supply shock,' said Hardy. At present, the market is not too concerned about supply in 2025 and 2026.

Vitol Group expects global oil demand to peak in the 2030s, while global oil demand growth in the next few years will remain fairly strong. However, they also anticipate a fatigue in gasoline and diesel demand in China as oil vehicles are being replaced by electric vehicles and LNG-fueled trucks.

Hardy predicts that global oil demand growth will decline from this year's daily 1.65 million barrels to around 1.1 million barrels next year, with most of the growth coming from developing countries.

In the past two years, the global oil market has experienced significant turmoil due to the impact of the COVID-19 pandemic and the Russia-Ukraine conflict. However, Hardy points out that this period of turmoil is gradually coming to an end.

He said, 'This year's market is more organized, more stable, and trade flows and patterns are more predictable... Volatility has returned to levels closer to the mean.'

Multiple investment banks have lowered their oil price expectations.

On the other hand, Morgan Stanley lowered its Brent crude oil price forecast on Monday for the second time in the past few weeks due to increasing demand challenges and ample supply.

According to the report by analyst Martijn Rats and others, Morgan Stanley expects the global benchmark oil price to average $75 per barrel in the fourth quarter. For comparison, earlier this year the expectation was $85, and just last month Morgan Stanley lowered the expectation to $80.

In addition to concerns about softening demand in China, recent signals of a potential slowdown in the US economy have also worried analysts. The non-farm employment reports released by the US in the past two months have fallen short of expectations and have been revised downward, raising concerns that the risk of a US economic recession may exceed expectations.

Morgan Stanley analysts wrote in the report: "The recent oil price trend is reminiscent of other periods of considerably weak demand."

In fact, Wall Street's concerns about oil price prospects extend beyond just Morgan Stanley—last month, Goldman Sachs also lowered its oil price expectations. Citigroup recently stated that the market appears to be oversupplied, and unless OPEC+ further reduces production, the average oil price by 2025 may be around $60 per barrel.

Editor/ping