Oil 2025 outlook: Mirae Asset Sharekhan bearish, sees support at $65-$62

Rising non-Opec+ production fears supply glut in 2025   

Crude oil prices rallied over six per cent for the week ending December 13 to trade around two weeks high, driven on the optimism surrounding China’s shift on monetary policy from “prudent” to “lose” with focus on domestic consumption led economic growth, while renewed geo-political risk arising out from the Syrian regime change has also helped prices to move higher. Oil prices have remained in a roughly $6 range since mid-October, but oil is able to hold an annual smaller gain of 4 per cent year-to-date (Y-T-D).

 

Weaker economic data

Weakness in Chinese economic news is bearish for energy demand and oil prices.  China’s new home prices fell 0.2 per cent month-on-month (M-o-M) in November, the eighteenth consecutive month new home prices have fallen. Also, China November retail sales rose more than 3.0 per cent year-on-year (Y-o-Y), weaker than expectations of  more than 5 per cent Y-o-Y. Crude demand in China has weakened and is a bearish factor for oil prices. Bloomberg analysis showed that China's November apparent oil demand fell 2.14 per cent Y-o-Y to 14.013 million barrels per day, and Jan-Nov apparent oil demand was down -3.26 per cent  Y-o-Y to 13.996 million  barrels per day.

 

Slower than expected US and Eurozone manufacturing activity is negative for fuel demand and crude prices.  The US Dec S&P manufacturing purchasing manager’s index (PMI) fell 1.4 to 48.3, weaker than expectations of 49.5. Also, the Eurozone December S&P manufacturing PMI was unchanged at 45.2, weaker than expectations of 45.3.

 

Sanction Fear

The prospects for additional sanctions on Russian and Iranian crude supplies pushed oil prices. Recent US tanker sanctions have led to a slowdown in Iranian vessels calling at Shandong ports, Russia ramped up air attacks on Ukraine's power infrastructure, further escalating hostilities. 

 

Revised outlook for 2025 

Opec

The cartel significantly revised down its global demand outlook for 28 per cent and 22 per cent for 2024 and 2025 from its July forecast as now it sees global oil demand to rise by 1.61 million barrels per day in 2024 to 103.8 million barrels per day, a slight downwards revision from last month’s forecast of 1.82 million barrels per day. For 2025, oil demand growth is forecast at 1.4 million barrels per day to 105.3 million barrels per day, a slight downward revision of 90,000 barrels per day. Meanwhile, Opec as a group continues to miss on its compliance and it is over produced by 1,04,000 barrels per day M-o-M to 26.66 million barrels per day in November. Chinese demand growth to 430,000 barrels a day this year from previous expectations of 450,000-barrels-a-day growth, after consumption contracted in October. Growth is still estimated at 3,10,000 barrels a day next year,

 

Opec+ production cuts extension

Oil prices may have got silver lining as Opec+ extends its production cuts policy until Q1-2025, ongoing Opec+ production cuts have contributed to global oil inventory withdrawals of about 400,000 b/d on average in 2024, and according to IEA the extension of Opec+ production cuts will cause inventories to fall by around 7,00,000 barrels per day the first quarter of 2025. However, we expect the subsequent ramp up in Opec+ production and continued supply growth outside of Opec+ will lead to an average inventory build of 100,000 barrels per day over the remainder of 2025.

 

EIA

Following Opec Environmental Impact Assessment (EIA) also sees global oil demand to ease down to average around 104.3 million barrels per day next year, from its previous forecast of 104.4 million barrels per day. Global oil output is now expected to average 104.2 million barrels per day in 2025, down from the prior forecast of 104.7 million barrels per day, and China remains the biggest hurdle in the incremental growth as world largest energy importing country’s (China) liquid fuels consumption will grow by less than 100,000 barrels per day in 2024 and by almost 3,00,000 barrels per day in 2025

 

Rising production

Many of the Opec+ members and non-Opec countries have ramped up their production in recent times owing to capex done in past, ie Nigeria's oil output reached 1.69 million barrels per day in November, marking its highest level in 44 months, Libyan output is hovering at 1.3 million barrels per day, while UAE has been producing over 3m barrels per day against its quota of 2.9 million barrels per day. US Output has already touched an all time high of 13.62 million barrels per day last week, the advancing technology have helped US to reduce oil extraction cost and pull more oil in 2024. The Trump 2.0 will also be supportive for US energy producers to pump more oil and gas; hence we expect supply glut is unavoidable in 2025.

 

Inflation concern

The US inflation has remained sticky and is showing rising signs as core inflation coming in at 0.3 per cent MoM, which may hold the dovish stance of Fed may be more cautious through 2025 with its easing cycle, which could affect the global expansion and oil demand.

 

Outlook

We remain bearish on oil prices for 2025, although Opec+ extension may hold prices from steep fall in Q1-2025, but medium to long term we expect prices to test support of $65-$62 and $60 by H1-2025 while geo-political risks could see prices rallying higher toward $72-$75 but overall trend look bearish.  

 

WTI Crude oil Feb: Support: $67, Resistance: $72

MCX Crude Jan: Support : 5,750,  Resistance: 6,150  (This article is by Mohammed Imran – Research Analyst, Mirae Asset Sharekhan. View expressed are his own.)