Crude oil outlook: WTI may remain-range bound at $56-$60, say analyst

Oil price outlook: Oil prices have declined 17 per cent on a year-to-date basis, with April marking 18 per cent fall, the biggest monthly drop in prices since November 2021

Supply glut fear weigh on crude prices

Global crude oil prices recovered sharply, around 10 per cent from the recent lows of $54.67 to notch up level of $60 on Wednesday as the market feared the contraction in US crude oil output if WTI prices sustained under $60. However, the weekly EIA inventory report showed a jump in gasoline reserves of around 0.2 million barrels at the start of the peak summer demand season. It has raised some concerns over the slowdown in consumer demand in the world’s largest oil-consuming nation. Oil prices have declined 17 per cent for the year-to-date, with April marking an 18 per cent fall, the biggest monthly drop in prices since November 2021.

FOMC stick to wait and watch approach

US FOMC concluded on the expected lines with unchanged rates in the range of 4.25 per cent and 4.50 per cent. US Federal Reserve acknowledged that the US economy remains solid as the labour market stays strong, but is in no rush to determine the future direction of interest rates, highlighting that risks have increased on both fronts, inflation and employment. Fed is expected to stick to the “wait & watch” approach, emphasising more on economic data as it sees that trade negotiations could have a material impact on the economic outlook. The Fed expects real GDP to moderate to 2.1 per cent in 2025 from 2.5 per cent in 2024, and to 2.0 per cent in 2026. Fed expects the unemployment rate to increase slightly to 4.3 per cent from 4.2 per cent in 2024 and remain there in 2026. On inflation, the Committee projected inflation to march higher to 2.5 per cent in 2025 compared to 2.4 per cent in 2024 and ease to 2.1 per cent in 2026. Core inflation is anticipated to converge back to 2.5 per cent in 2025 against 2.8 per cent in 2024 and 2.2 per cent in 2026. The Fed has halved the interest rate cut expectation to 50 basis points (bps) to bring the Fed fund rate to 3.9 per cent and another 50 bps to 3.4 per cent in 2026. In the longer run, the Fed pencilled in a slightly higher longer-run rate of 3.0 per cent. A delay in rate cuts will have a negative impact on oil prices.

China’s liquidity measures to hold economic slowdown

China has launched additional monetary stimulus with a stronger commitment to boosting stock and property markets to defy the tariff shock. The stimulus policies would mildly ease liquidity and credit conditions and encourage risk-taking in stock and property markets. However, these policies cannot fully offset the negative impacts of the tariff shock on China’s economy, as we expect China’s GDP to grow at 4 per cent in 2025. Chinese policymakers might launch additional fiscal stimulus in the second half of 2025 to boost household consumption.

EIA revised up surplus forecast

EIA forecasts the crude oil market to see a surplus of 0.5 million barrels per day (mbpd) from Q2 of 2025 before increasing by 0.7 mbpd in Q4 of 2025 and surplus of 1 mbpd for 2026. Opec+'s decision to raise output has changed the supply matrix of Opec+ from the expectation of a supply deficit of 1.4 mbpd to a surplus of 0.1 mbpd for 2025. However, supplies from the US are expected to slow down as lower crude prices will put pressure on US energy producers to cut down capacities, hence expect a drop in US production to 13.42 mbpd from earlier estimates of 13.53 mbpd. The rigs' activities have dropped by over 5 per cent in 2025.

Asian demand to remain mixed

China and India remain the biggest hurdle for crude oil’s incremental demand, while India is expected to show strong resistance to demand slowdown with increased consumption of liquid fuels by 0.2 mbpd in 2025 and 0.3 mbpd in 2026, but China's demand is expected to ease down to 0.2 mbpd from earlier estimate of 0.3 mbpd.

Outlook

We stick to bearish stance on crude but prices are expected to consolidate at current levels and will not see sharp selloff from the hereon, the short-term trading range should be in between $56-$60, however higher volatility is expected on any progressive news on US-China negotiation front, which could see prices flipping above $60-$62. Medium range would also depend on the expected trade deal of US-China and expectation of Chinese stimulus, which is expected in H2-2025, but we do not expect WTI to breach the resistance of $65 in the medium term and hold strong support around $52.

 

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