Crude oil to remain range-bound at $65-$58, may gain from China's support

Oil prices: Crude has recovered from a sharp drop to near the lowest in four years of $56.81/b, brought about by an onslaught of tariffs and counter-levies between the US and its biggest trading partners but since then have made strong recovery to trade around $63 on back of some positive development on trade war front. The Whitehouse paused reciprocal tariffs for all 90 days for all trading partners except China but had tariff exemptions on consumer electronics and semiconductors that could reduce the negative impact on China’s economy by 0.4 percentage points.  Crude prices have had the most volatile week in four years as the prices tumbled over 20 per cent in 4 trading sessions amidst the trade war turmoil, citing the ongoing trade war the OPEC has slashed its crude oil demand outlook for 2025 and 2026. The cartel lowered demand growth projections for 2025 and 2026 by about 100,000 barrels a day, projecting an expansion of 1.3 million barrels a day or approximately 1 per cent for each year.

 

 

China stimulus awaited

China's economy expanded at a faster pace than anticipated in the first quarter, with March activity data indicating a broad-based acceleration. However, the impact of the trade war is likely to become more evident in the coming months. Chinese authorities are probably going to wait and assess the extent of the export slowdown before taking further action. China could rely on domestic consumption, supported by fiscal measures, to mitigate external headwinds. But real estate continues to be the blot on economy as China q1 property sales by floor area -3.0 per cent y/y,, China q1 new construction starts -24.4 per cent y/y, China q1 property investment -9.9 per cent y/y, China q1 infrastructure investment +5.8 per cent y/y

 Trump’s aggressive tariffs might slow China’s economic growth by over 0.5ppts by reducing exports, hurting business investment and undermining consumer confidence. 

China's crude oil imports in March 2025 rebounded sharply compared to the previous two months, rising nearly 5 per cent y/y. This was mainly driven by a surge in Iranian oil imports and a recovery in Russian oil supplies. Total crude oil imports in March reached 51.41 million metric tons, equivalent to an average daily import volume of 12.10 million barrels—the highest level since August 2023. This marks an increase compared to March 2024 -11.55 million barrels per day and the January-February 2025 period -10.38 million barrels per day.

 

US Crude production showing fatigue sign due to price correction

The recent price correction in WTI is showing significant pressure on the US energy market as the active US oil rigs in the week ending April 11 declined by 9 to 480 rigs, The number of US oil rigs has fallen over the past years from the 4-1/2 year high of 627 rigs posted in December 2022. EIA reported an 18 per cent decline in drilling activities in past one year, while the new well is averaging around between $60-$65/b of production cost due to expressing hydraulic fracturing and horizontal drilling activities while the existing well costs between $35-$40/b. US production dropped 3 per cent in January 2025 to 13.15 mbpd from December 2024, lowest output since Feb 2024. US crude oil inventories as of April 11 were -5.2 per cent below the seasonal 5-year average, gasoline inventories were -0.9 per cent below the seasonal 5-year average, and distillate inventories were -10.2 per cent below the 5-year seasonal average.  US crude oil production in the week ending April 11 was unchanged w/w to 13.462 million bpd, modestly below the record high of 13.631 million bpd from the week of December 6.

 

Crude upside capped by OPEC+ decision

The cartel group surprised markets by deciding to boost crude production in May by 411,000 bpd, much more than the +138,000 bpd of crude production it added this month.  OPEC+ is boosting output to reverse the 2-year-long production cut, gradually restoring a total of 2.2 million bpd of production.  OPEC+ fell in March by 37,000 bpd to 41.02 million bpd due in part to reductions by Nigeria and Iraq, OPEC Mar crude production fell -78,000 bpd to 26.78 million bpd. We believe that oil markets will be in a surplus of 800,000 bpd in 2025 and climb to a +1.4 million bpd surplus in 2026.

 

Economic slowdown

The World Trade Organization has slashed its projection of global growth for 2025 by 0.2 per cent, from its November projection of 3 per cent, and warned that if the US pushes ahead with reciprocal tariffs, global trade will contract at -1.5 per cent this year, global trade forecast is negative for energy demand and crude prices.

 

Outlook

We expect prices to trade range bound between $65-$58, as the 90 days tariff relief window will see industrial commodities consolidating a bit higher, while crude oil could also benefit from policy support from China, which is expected anytime soon but medium to long term would be affected by Trump's tariff policies. 

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