Oil Prices Poised to Plunge to $60 in 2025 as Stockpiles Swell

Citi analysts predict oil prices will reach their highest point this summer before experiencing a significant drop in 2025.

As of Thursday, West Texas Intermediate (CL=F) slightly increased to over $82 per barrel, while Brent (BZ=F), the global benchmark, edged above $85 per barrel.

Citi's analyst, Lee, anticipates that oil prices will remain in the low to mid-80s throughout the summer due to a temporary supply tightness. However, he expects a substantial market shift in the latter half of the year, leading to a decrease in Brent prices to the $70 range later this year and further dropping to the $60 range in 2025.

This outlook aligns with the recent announcement from OPEC+ regarding the planned gradual elimination of voluntary production cuts. The cartel faces mounting pressure from member nations to end these reductions to maintain their market share.

Lee projects an accumulation of global oil stocks by 1.4 million barrels next year, following a nearly balanced market this year, which he believes will negatively impact prices. Additionally, he forecasts a slowdown in oil demand growth, partly driven by the increasing adoption of electric vehicles. According to Lee, oil demand might peak before the decade's end as it grows at a slower rate relative to GDP.

Citi's perspective is notably more bearish compared to other Wall Street forecasts. Nonetheless, other analysts also foresee a decline in oil prices next year. JPMorgan's strategists predict Brent will average $75 in 2025, down from $83 in 2024. They attribute this to the waning post-pandemic demand rebound, improvements in energy efficiency, and the growing electric vehicle market.

Goldman Sachs, on the other hand, expects Brent to average $84 this year, following a supply squeeze over the summer, and projects the international benchmark to average $82 in 2025.

Impact on Global Markets

The anticipated decline in oil prices could have significant implications for global markets. Lower oil prices generally reduce costs for industries reliant on fuel, such as transportation and manufacturing, potentially leading to lower consumer prices and increased disposable income. This could stimulate economic growth in oil-importing countries. Conversely, oil-exporting nations might experience reduced revenues, impacting their economies and possibly leading to budgetary adjustments or economic reforms.

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Potential Shift in Energy Investment

With oil prices projected to decrease, there may be a shift in investment strategies within the energy sector. Investors might pivot towards renewable energy sources and technologies that promise more stable returns. This shift could accelerate the transition to cleaner energy, supported by advancements in electric vehicle technology and increasing global commitments to reducing carbon emissions. Companies involved in renewable energy could see increased interest and capital inflows as the profitability of traditional oil ventures declines.

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