It is unlikely that there will be trend changes in both supply and demand in the short term, and it is difficult for international oil prices to fall sharply. However, factors such as geopolitical risks, the US presidential election, and the adjustment of the OPEC+ production policy may cause major short-term fluctuations in international oil prices.

Since the beginning of July, international oil prices have gone through a wave of volatility after surging and falling.From the intraday low of US887.95/barrel on July 5th to the low of US775.05/barrel on August 5th, the maximum drop was close to 15%, and then it fluctuated repeatedly in the range of US775~82/barrel, which triggered the market's concern about the sharp decline in oil prices this year.

Pessimistic demand growth expectations have led to a decline in international oil prices

In mid-August, OPEC lowered its forecast for global crude oil demand growth in 2024 from the previous 2.25 million barrels per day to 2.11 million barrels per day in its monthly report. At the same time, it lowered its forecast for global crude oil demand growth in 2025 from 1.85 million barrels per day to 1.78 million barrels per day, citing weakening demand expectations in some economies.Reuters said this was OPEC's first downgrade since it made its 2024 demand forecast in July last year.

Research reports released in July by the International Energy Agency (IEA) and the U.S. Energy Information Administration (EIA) are also pessimistic about the near-term growth of global crude oil demand.Among them, the International Energy Agency lowered its forecast for global crude oil demand this year and next by 100,000 barrels per day and 200,000 barrels per day, respectively; the U.S. Energy Information Administration lowered its forecast for global crude oil demand in 2024 by 70,000 barrels per day, but the demand forecast for 2025 was slightly raised.

In fact, the expected slowdown in global crude oil demand growth is an important reason for the sharp drop in international oil prices from close to US888/barrel to near US775/barrel from early July to early August.Especially in early August, international oil prices fell for three consecutive trading days without major bearishness, with a maximum decline of more than 8%, reflecting market concerns about the near-term outlook for global crude oil demand.On August 28, the price of Brent crude oil was US778.65/barrel and the price of WTI was US774.52/barrel.

Factors on both sides of supply and demand do not support a sharp decline in international oil prices

From the analysis of the fundamentals of supply and demand, the basis of the fluctuation trend of oil prices at this stage is still dominated by the supply side, and the two sides of supply and demand work together, and it is unlikely that there will be a trend change in the short term on both sides of supply and demand, so it is difficult for international oil prices to fall sharply this year.

On the supply side, the growth potential of global crude oil supply in the short term is limited, which will support international oil prices to remain relatively high.In terms of resources, data from energy consulting companies Wood Mackenzie and S&P Global show that a total of 255 oil and gas discoveries have been confirmed worldwide in 2023, with 11.92 billion barrels of oil equivalent in new recoverable reserves, which is much lower than the average level of 16 billion barrels of oil equivalent in the past decade, and the new reserves account for a relatively large proportion in the fields of two deep and one non-deep (deep, deep-sea, unconventional oil and gas resources). While increasing the difficulty of exploration and development, it will also significantly increase the operating costs of oil companies.In terms of investment, the global oil and gas exploration and development sector will show a moderate recovery in 2023. Upstream investment will increase from US4408 billion in 2022 to US4445 billion, but exploration investment is only US441 billion, accounting for 9.2% of total upstream investment, which is the lowest level in the past five years.Due to the time delay relationship between investment level and exploration and development results, it is expected that global oil and gas storage production will be difficult to increase significantly due to investment growth in the near and medium term.

On the supply side, on the one hand, although some OPEC+ countries such as Saudi Arabia and Russia plan to gradually lift production cuts from October, if international oil prices fall significantly, the above-mentioned countries may suspend or reverse their production increase plans in accordance with market conditions.On the other hand, the U.S. Energy Information Administration estimated in July that U.S. crude oil production this year will average 13.25 million barrels per day, an increase of less than 300,000 barrels per day over last year.In addition, although Iran and Venezuela's crude oil production increased slightly year-on-year this year, they were affected by international sanctions and other factors, which had a limited impact on the global crude oil market.

On the demand side, it is expected that global crude oil demand will not fall sharply in the near and medium term.According to historical data analysis, from 1992 to 2023, the growth rate of crude oil demand was highly correlated with the fluctuating trend of world economic growth, but crude oil demand only declined slightly during the three annual negative growth periods of the world economy.Authoritative institutions predict that the world economy will show a gradual recovery this year.Among them, the International Monetary Fund (IMF) pointed out in the latest "World Economic Outlook Report" that global economic activity has become more active in the first half of the year, and technology will provide new impetus for global economic growth. The world economic growth rate is expected to be 3.2% this year and 3.3% in 2025.In the recently released "Global Economic Outlook" report, the World Bank said that with the weakening of monetary policy restrictions and the growth of global trade, the global economy will grow by 2.6% this year, and the growth trend in most regions will gradually strengthen.The United Nations Department of Economic and Social Affairs released the mid-year update report of the "World Economic Situation and Outlook for 2024". It is cautiously optimistic about the outlook for world economic growth. It raised the forecast for world economic growth this year from 2.4% at the beginning of the year to 2.7%, and raised the forecast for world economic growth in 2025 from 2.7% to 2.8%.The OECD said that as economic growth becomes more resilient, inflation in many countries will cool faster than expected, and raised its forecast for world economic growth this year from 2.9% to 3.1%.

Multiple factors make international oil prices fluctuate

Although from both sides of supply and demand, it is difficult for international oil prices to fall sharply during the year, but the geopolitical risks of some oil-producing countries, the US presidential election, and the adjustment of OPEC+ production policy and other factors may lead to large short-term fluctuations in international oil prices this year.

From the perspective of geographic risk, on the one hand, the geopolitical conflicts in Europe are constantly intensifying, and the international market has gradually adapted to its adverse effects on the development of oil and gas, and its impact on oil price fluctuations is relatively small.On the other hand, the Israeli-Palestinian conflict continues to repeat itself. John Kilduff, a partner of Again Capital, an American financial company, said, “The market is increasingly worried about large-scale conflicts in the Middle East.”The expansion of geopolitical conflicts may affect the growth of crude oil production in oil-producing countries in the Middle East.In addition, for activities such as U.S. Secretary of State Blinken flying to Tel Aviv to mediate and promote a Palestinian-Israeli ceasefire, market analysis believes that this move will reduce the geopolitical risks of oil and gas in the Middle East and promote international oil prices to fall in the short term.

From the perspective of the US presidential election, the energy policies of the two presidential candidates, Trump and Harris, are very different.If Trump enters the White House again, his government may issue an executive order to increase support for oil and gas resources, promote the development of the U.S. fossil energy industry, and promote the continued growth of U.S. crude oil production, which will have a negative impact on the rise in international oil prices.If Harris is successfully elected, he may implement a more radical energy transition policy than the Biden administration, realize climate benefits and economic benefits through the development of new energy sources, and help the United States maintain a global leading position in the field of new energy. At the same time, it will more severely restrict investment in the development of traditional fossil energy sources such as oil and gas. In the short term, it may play a certain supporting role in the high volatility of international oil prices, but it may have a disruptive and negative impact on the international crude oil market in the medium and long term.No matter which candidate wins, before the energy policy is officially introduced, relevant remarks may lead to large short-term fluctuations in international oil prices.

From the perspective of OPEC+ production policy adjustment, since 2020, member states have repeatedly demonstrated their ability to respond quickly to market changes and their determination to stabilize the market through measures such as production restrictions and price guarantees.At the 37th OPEC+ Ministerial Meeting in June, some member states stated that they will decide how to resume voluntary production cuts from October 2024 to September 2025, depending on market conditions.Judging from the perspective of maximizing the interests of OPEC+, first of all, international oil prices should not be too high. Exceeding US美元100 per barrel will stimulate the global energy market to accelerate the transformation and development. If a new energy source or energy storage technology makes a substantial breakthrough, it will have a disruptive impact on crude oil demand, which is not in line with the fundamental interests of OPEC+ at this stage.Secondly, international oil prices should not be too low. Oil and gas revenue accounts for more than 70% of the fiscal revenue of most OPEC+ member states. Low oil prices will seriously affect their fiscal revenue.Finally, oil price fluctuations should not be too flat. The price risk of wide fluctuations will restrict some investment entities with non-traditional oil and gas industry backgrounds from participating in the global upstream oil and gas market, which is objectively conducive to OPEC+ to consolidate control of the global crude oil market.

(Author's unit: Sinopec Petroleum Exploration and Development Research Institute)

Bank of America said that the increase in non-OPEC+ supply may cause oversupply in the market

The Global Research department of Bank of America recently released a report saying that oil production in non-OPEC+ oil-producing countries has recently increased, especially Brazil, Guyana, Canada and the United States, and it is expected that global oil production will increase by 1 million barrels per day this year and 1.6 million barrels per day next year.This increase comes at a time when OPEC+ is considering increasing additional production later this year, which may cause oversupply in the market.

At the same time, global oil demand growth is showing signs of slowing, partly due to the increasing penetration of electric vehicles, especially in China.Bank of America predicts that global oil demand will increase by 1 million barrels per day this year and 1.1 million barrels per day by 2025.Next year, the global oil market may experience an oversupply of 700,000 barrels per day, resulting in a significant increase in commercial and strategic oil stocks.

The report also predicts that the average price of Brent crude oil will reach US886/barrel this year and will fall to US880/barrel in 2025, reflecting the expected weak market environment.

Bank of America executives said in March that they were seeking to expand the scale of energy transition-related businesses, including promoting carbon trading and natural gas market trading.

 (Li Song)

Morgan Stanley expects Brent oil prices to be 75 per barrel by the end of next year

Morgan Stanley recently adjusted its oil price forecast and lowered its forecast for global oil demand growth this year to 1.1 million barrels per day, slightly lower than the previous forecast of 1.2 million barrels per day.This adjustment was driven by a variety of factors, including a slowdown in production growth in non-OPEC oil-producing countries such as the United States and Brazil.Morgan Stanley pointed out that these adjustments actually slightly tightened the overall balance of supply and demand for the rest of the year.

Morgan Stanley expects the price of Brent crude oil to remain at about US880/barrel in the third and fourth quarters, and will fall to US775/barrel by the end of 2025.

Morgan Stanley adjusted its oil price forecast for several reasons, such as the surge in sales of trucks powered by liquefied natural gas (LNG) and the increasing popularity of electric vehicles.In addition, Morgan Stanley also said that the slowdown in demand growth for petrochemical raw materials is one of the reasons for the downward revision of demand growth forecasts.(Li Song)

S&P Global said the surplus in the oil market will shrink next year

The latest analysis by S&P Global shows that the growth of U.S. oil production is slowing.Although production will still exceed demand, the slowdown in oil production growth in oil-producing countries outside OPEC+ (especially the United States) is expected to reduce the surplus in the global oil market in 2025.

S&P Global lowered its forecast for the growth of crude oil production in non-OPEC+ oil-producing countries in the short-term outlook report for the global crude oil market. It will grow by 829,000 barrels per day in the second half of the year, 390,000 barrels per day lower than the previous forecast; it will grow by 1.2 million barrels per day in 2025, 570,000 barrels per day lower than the previous forecast.The main reason for the downgrade was that the growth of U.S. oil production was lower than expected.S&P Global expects that U.S. oil production will increase by 182,000 barrels per day in the second half of the year, 174,000 barrels per day less than the previous forecast; in 2025, it will increase by 429,000 barrels per day, 311,000 barrels per day less than the previous forecast.

Jim Burkhard, head of global energy research at S&P, said: “The reason for downgrading the US oil supply growth forecast is simple. So far this year, upstream activity has been less than previously expected.”

Although U.S. supply growth has slowed, it does not mean that oil prices will necessarily rise.OPEC+ recently reiterated its production increase plan for later this year. Due to OPEC's additional supply, the global oil market will still be oversupplied in 2025.However, OPEC+ may also adjust production policies, which means that greater supply cannot be guaranteed.

S&P Global expects the average crude oil price in 2025 to be lower than in 2024.Burkhard said, “The pace of supply growth in the United States is slowing, but global demand growth is also slowing.Considering the prospect that OPEC+ will increase production, the global oil market may be oversupplied in 2025.”(Li Jun)

Goldman Sachs expects Brent oil prices to be 75 to 990 per barrel next year

Goldman Sachs recently expects that in 2025, the price of Brent crude oil will fluctuate between 75 and 90 US dollars per barrel.The premise is that U.S. GDP is growing on a trend, oil demand remains stable, and the market balance brought about by OPEC+.

At the same time, Goldman Sachs pointed out that although there are many uncertainties in trade policy, it is unlikely that the United States will impose tariffs on crude oil imports.If the United States imposes a 10% tariff on all imported goods, demand and GDP growth will slow, causing oil prices to fall by up to 11 per barrel next year.However, if the Fed postpones interest rate cuts until after 2025 due to rising core inflation, the imposition of tariffs may cause oil prices to fall by up to 19 per barrel.

In addition, Goldman Sachs expects that the price of Brent crude oil will fall to US662 per barrel in the fourth quarter of 2025.(Wang Yingbin)

Source: Sinopec News