Crude oil prices to see continued volatility; check strategy, key levels

Bearish oil outlook deepens amid supply surplus and geopolitical tensions

Oil prices have declined by 4 per cent in September, following a sharp 8 per cent drop in August, and are now down 11 per cent year-to-date (YTD). The market has remained highly volatile throughout the year, with prices swinging between a low of $54 per barrel, driven by concerns over a global supply glut, and a high of $75 per barrel, fueled by fears of escalating tensions between Iran and Israel, potentially spilling over into the oil-rich Middle East Gulf region.

Asian demand leads global demand

Asia's crude oil demand YTD 2025, led by India (5.7 million bpd, 1.54 billion barrels) and China (16.9 million bpd, 4.56 billion barrels), drives 60 per cent of global demand growth (1.3 million bpd). India's 3.39 per cent growth outpaces China's 1.5 per cent, with imports at 5.4 million bpd and 11.58 million bpd (376 million tons, Jan–Aug), respectively. 

 

August 2025 saw China's imports rise to 11.65 million bpd (+4.9 per cent from July), while India’s held steady. The global surplus (100,000–600,000 bpd) and Opec+'s 2.5 million bpd restoration depress prices, suggesting bearish oil trades but bullish opportunities in India’s energy sector. 

OPEC to raise output in October

In its relent to gain the lost market share over the year due to production cuts, eight of the OPEC members have once again decided to raise output by 137kbpd in October, following 2.5mbpd of production restoration in the last five months, thus bringing back 2.4 per cent of the global output. The next meeting is set for October 5. While Saudi Arabia cut prices for all of its crude grades today by $1 a barrel for buyers in Asia for delivery in October, a sign of weak demand for crude and a steeper cut than expectations of a -50 cents per barrel reduction.  

Russian energy refiners at risk

Oil prices could see some short-term tightness amid the ongoing Ukraine-Russia conflict, which makes us believe that both countries are nowhere near reaching a peace deal, keeping the oil market on its toes. Ukrainian drone strikes have crippled 17 per cent of Russia’s refining capacity (1.1 million bpd), affecting key facilities like Ryazan and Volgograd, leading to domestic fuel shortages and increased crude exports (2 million bpd in August). The Flamingo missile (3,000 km range, 1,150 kg warhead) threatens further disruptions, potentially targeting all Russian energy infrastructure.

Global economic activities in August

Global economic activity in August 2025 showed mixed signals. The US economy exhibited signs of weakness, with only 22,000 jobs added and unemployment rising to 4.3 per cent. Manufacturing contracted further, as reflected in a PMI of 47.2, while Q2 GDP was revised to 3.3 per cent, largely due to tariff-related front-loading. These indicators have strengthened expectations of monetary easing, with a 25 bps Fed rate cut anticipated in September and two more by year-end. In contrast, China's economy remained resilient, supported by strong domestic demand and a temporary easing of trade tensions due to extended negotiations until mid-November. 

Crude outlook

Oil prices have responded to these developments with continued volatility. Brent crude faces limited upside above $70, as higher prices may dampen Chinese demand, while increased OPEC+ production is helping offset geopolitical risks. WTI prices are expected to decline further, potentially averaging $57–$58 by year-end. The extent of any further price drop will depend on U.S. energy producers, who have so far maintained stable output levels despite market pressures.

 

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Disclaimer: Mohammed Imran is a research analyst at Mirae Asset Sharekhan. Views expressed are his own.