Source: Wall Street See
Author: Long Yue.
Wall Street investment banks believe that by 2025, there will be a severe oversupply of crude oil products, leading to a possible drop in oil prices to the $60 level. OPEC+ agreeing to pause production increases may temporarily support oil prices, but the bears currently dominate and the oil price rebound is weak. Even the long-term bull Tok Group has issued a rare warning that oil prices could fall to the $60 range.
Recently, crude oil has been experiencing a "cruel" sell-off. WTI crude oil futures plummeted 8% last week, marking the largest weekly decline in 11 months, closing at $67.67 per barrel on Friday, reaching a new low in over a year. The trend of Brent crude oil is equally brutal, with a cumulative drop of nearly 10% last week.
Currently, Wall Street institutions continue to have a consistent pessimistic outlook on crude oil. On September 9th, Morgan Stanley once again lowered its oil price forecast, believing that the global oil market is in a period of weak demand. Citigroup went even further to predict that due to market oversupply, oil prices could fall to around $60 per barrel by 2025.
In line with the views of Wall Street investment banks, Goldman Sachs also believes that future oversupply of crude oil will be an important factor driving the continued weakness of oil prices. Although HSBC maintains its oil price forecast in its recent research report, it states that the crude oil market is hard to be bullish and that the downside risk for oil prices is increasing.
Tokyo Group, a commodity giant that has a long-term bullish view on crude oil, also rarely agrees with the "oversupply" view, warning that oil prices could fall to $60.
Wall Street investment banks have a unanimous pessimistic outlook, will oil prices head straight for $60?
On September 9, Morgan Stanley cut its Brent crude oil price forecast for the second time in a few weeks due to concerns about oversupply and weak demand. Analysts such as Martijn Rats lowered their forecast for Brent crude oil in the fourth quarter of this year from $80 per barrel to $75 per barrel. The 2015 price forecast was also revised down to $75 per barrel.
Morgan Stanley stated that the increase in crude oil inventories, declining refining margins, etc., all reflect characteristics of past periods of recession or weak demand. These periods include the 2007-2008 financial crisis and the drop in crude oil demand caused by the 2020 pandemic crisis. The bank pointed out that there will be an oversupply of approximately 1 million barrels per day in the crude oil market in 2025:
The seasonal strengthening trend of crude oil demand usually fades after the summer and enters the fourth quarter, OPEC and non-OPEC countries' crude oil supply may accelerate again, leading to a shift in supply-demand balance. The crude oil market will remain in a tight balance in the third quarter, near balance in the fourth quarter, with an oversupply of around 1 million barrels per day in the crude oil market in 2025.
Taking into account factors such as high idle capacity, potential trade tensions, and the possibility of OPEC supply exceeding expectations next year, Goldman Sachs lowered its Brent crude oil price forecast range by $5 per barrel to $70-85 last month. Currently, Goldman Sachs still maintains this expectation.
Compared to Goldman Sachs and Morgan Stanley, Citigroup's expectations appear more pessimistic. Citigroup's research department strategist stated that by 2025, as the market experiences oversupply, oil prices may fall to around $60 per barrel. The report reads:
It is recommended to sell when Brent crude oil prices rebound to around $80, as we expect prices to drop to the range of $60 by 2025 as large-scale oversupply emerges in the market.
However, Citigroup predicts that OPEC+ delaying production increase plans and geopolitical factors including disruptions in supply like Libya may provide support for Brent crude oil prices at $70-72.
Another bank, HSBC, maintains its forecast for the fourth quarter of this year at $80 per barrel for Brent crude oil and the 2025 price forecast at $76.5 per barrel. However, the bank stated that it is difficult for the oil market to be bullish. Furthermore, with the expectation of oversupply early next year, the downside risk to oil prices is increasing. If oversupply occurs earlier than expected, the risk of prices falling below the $75-$85 per barrel range will increase.
HSBC predicts that crude oil prices may fluctuate due to the decision of OPEC+. Increased production could lead to a surplus in the market and a drop in oil prices, while delaying production could support prices in the short term. The bank said,
OPEC+ faces a difficult choice: either increase production and cause an oversupply, or maintain production levels and risk being seen as acknowledging weak crude oil demand, thereby affecting market sentiment.
Today, September 10th, OPEC will release its monthly crude oil market report.
Tooker warns of the risk of a sharp drop in oil prices, but there should not be excessive pessimism.
On the first day of the Asia Pacific Petroleum Conference (APPEC), two major commodity trading giants, Trafigura and Gunvor Group, also conveyed a pessimistic outlook for the crude oil market.
The long-term bullish commodity giant Trafigura unusually agrees with the 'oversupply' view and expects oil prices to drop significantly. Luckock, Trafigura's head of oil trading, said that Brent crude prices 'may soon enter the pessimistic range of $60'.
However, Luckock also warned against being overly bearish on the oil market. He said, 'This is dangerous because there are too many events' that could change the situation, 'you shouldn't bet all your chips on the bearish side.'
According to speakers at the Asia Pacific Petroleum Conference, the global crude oil benchmark, Brent crude oil prices, 'may soon enter the pessimistic range of $60'. In comparison, the current Brent crude oil futures price is hovering around $72, so Trafigura's expectation implies a potential ongoing downward trajectory for oil prices.
The chairman of the Gongwo Group stated, "Now we produce far more oil than we consume, and this balance is expected to deteriorate in the coming years."
How long can the OPEC+ agreement to suspend production increases support oil prices?
Last Thursday, according to Reuters, a representative stated that OPEC+ has formed a consensus to postpone the reintroduction of oil supply by two months. In response, Morgan Stanley stated that the postponement of the production increase plan by OPEC+ indicates its continued focus on balancing the oil market. Brent crude oil prices are expected to remain stable at around $70 unless demand further weakens.
Goldman Sachs stated in its latest research report that despite OPEC+ agreeing to delay the production increase plan by two months until the end of November, the bank still expects OPEC+ countries to increase production in the following three months. The bank forecasts that by 2025, the entire crude oil market may shift from a slightly tense supply-demand balance to a potential surplus.
Market analysis points out that despite the sharp drop in US crude oil inventories, the risk of Cushing inventory reaching the bottom, and the OPEC+ decision to delay production increases by two months, oil prices are rebounding weakly because the bears currently dominate.
Editor/rice